robust portfolio optimization for electricity planning an application based on the brazilian electricity mix one of the major challenges of today s policy makers and industry strategists is to achieve an electricity mix that presents a high level of energy security within a range of affordable costs and environmental constraints bearing in mind the planning of a more reliable electricity mix the main contribution of this paper is to consider parameter uncertainties on the electricity portfolio optimization problem we assume that the expected and the covariance matrix of the costs for the different energy technologies such as gas coal nuclear oil biomass wind large and small hydropower are not exactly known we consider that these parameters belong to some uncertainty sets box ellipsoidal lower and upper bounds and convex polytopic three problems are analyzed i finding a energy portfolio of minimum worst case volatility with guaranteed fixed maximum expected energy cost ii finding an energy portfolio of minimum worst case expected cost with guaranteed fixed maximum volatility of the energy cost iii finding a combination of the expected and variance of the cost weighted by a risk aversion parameter these problems are written as quadratic second order cone programming socp and semidefinite programming sdp so that robust optimization tools can be applied these results are illustrated by analyzing the efficient brazilian electricity energy mix considered in losekann et al 2013 assuming possible uncertainties in the vector of expected costs and covariance matrix the results suggest that the robust approach being by nature more conservative can be useful in providing a reasonable electricity energy mix conciliating co2 emission risk and costs under uncertainties on the parameters of the model

decision support tool for assessing future nuclear reactor generation portfolios abstract capital costs fuel operation and maintenance o m costs and electricity prices play a key role in the economics of nuclear power plants often standardized reactor designs are required to be locally adapted which often impacts the project plans and the supply chain it then becomes difficult to ascertain how these changes will eventually reflect in costs which makes the capital costs component of nuclear power plants uncertain different nuclear reactor types compete economically by having either lower and less uncertain construction costs increased efficiencies lower and less uncertain fuel cycles and o m costs etc the decision making process related to nuclear power plants requires a holistic approach that takes into account the key economic factors and their uncertainties we here present a decision support tool that satisfactorily takes into account the major uncertainties in the cost elements of a nuclear power plant to provide an optimal portfolio of nuclear reactors the portfolio so obtained under our model assumptions and the constraints considered maximizes the combined returns for a given level of risk or uncertainty these decisions are made using a combination of real option theory and mean variance portfolio optimization

real option valuation of power transmission investments by stochastic simulation abstract network expansions in power markets usually lead to investment decisions subject to substantial irreversibility and uncertainty hence investors need valuing the flexibility to change decisions as uncertainty unfolds progressively real option analysis is an advanced valuation technique that enables planners to take advantage of market opportunities while preventing or mitigating losses if future conditions evolve unfavorably in the past many approaches for valuing real options have been developed however applying these methods to value transmission projects is often inappropriate as revenue cash flows are path dependent and affected by a myriad of uncertain variables in this work a valuation technique based on stochastic simulation and recursive dynamic programming called least square monte carlo is applied to properly value the deferral option in a transmission investment the effect of option s maturity the initial outlay and the capital cost upon the value of the postponement option is investigated finally sensitivity analysis determines optimal decision regions to execute postpone or reject the investment projects

investment and upgrade in distributed generation under uncertainty the ongoing deregulation of electricity industries worldwide is providing incentives for microgrids to use small scale distributed generation dg and combined heat and power chp applications via heat exchangers hxs to meet local energy loads although the electric only efficiency of dg is lower than that of central station production relatively high tariff rates and the potential for chp applications increase the attraction of on site generation nevertheless a microgrid contemplating the installation of gas fired dg has to be aware of the uncertainty in the natural gas price treatment of uncertainty via real options increases the value of the investment opportunity which then delays the adoption decision as the opportunity cost of exercising the investment option increases as well in this paper we take the perspective of a microgrid that can proceed in a sequential manner with dg capacity and hx investment in order to reduce its exposure to risk from natural gas price volatility in particular with the availability of the hx the microgrid faces a tradeoff between reducing its exposure to the natural gas price and maximising its cost savings by varying the volatility parameter we find that the microgrid prefers a direct investment strategy for low levels of volatility and a sequential one for higher levels of volatility

tax collection with agency costs private contracting or government bureaucrats historically governments contracted with private agents known as tax farmers to collect taxes this paper develops a theoretical framework for determining when a welfare maximizing government should choose tax farmers over bureaucratic tax collectors while bureaucratic collectors have an incentive to shirk and raise collection costs above least costs profit maximizing private collectors tend to reduce tax evasion below the optimal level generally the choice of collection methods depends on a comparison of the welfare loss associated with monitoring in the bureaucratic setting and the welfare loss associated with overdetection of evasion in the private setting copyright 1992 by the london school of economics and political science

country specific oil supply shocks and the global economy a counterfactual analysis abstract this paper investigates the global macroeconomic consequences of country specific oil supply shocks our contribution is both theoretical and empirical on the theoretical side we develop a model for the global oil market and integrate this within a compact quarterly model of the global economy to illustrate how our multi country approach to modeling oil markets can be used to identify country specific oil supply shocks on the empirical side estimating the gvar oil model for 27 countries regions over the period 1979q2 to 2013q1 we show that the global economic implications of oil supply shocks due to for instance sanctions wars or natural disasters vary considerably depending on which country is subject to the shock in particular we find that adverse shocks to iranian oil output are neutralized in terms of their effects on the global economy real outputs and financial markets mainly due to an increase in saudi arabian oil production in contrast a negative shock to oil supply in saudi arabia leads to an immediate and permanent increase in oil prices given that the loss in saudi arabian production is not compensated for by the other oil producers as a result a saudi arabian oil supply shock has significant adverse effects for the global economy with real gdp falling in both advanced and emerging economies and large losses in real equity prices worldwide

time consistency and bureaucratic budget competition high employment protection in the public sector results in strategic over employment if government divisions compete for budgets in a dynamic setting bureaucrats who are interested in maximising their divisions output employ excess labour since this induces the sponsor to provide complementary inputs in the future restrictions on hiring decisions in the public sector can be regarded as provisions to reduce strategic hiring we also provide evidence from a survey of decision makers in a public sector bureaucracy with very high employment protection the results confirm that decision makers are aware of the strategic effects of their hiring decisions on budget allocation 2008 the author s journal compilation royal economic society 2008

public sector efficiency leveling the playing field between oecd countries in this paper we seek a robust methodology for the measurement of the relative public sector efficiency of 19 oecd countries over the period 1980 2000 we estimate relative efficiency scores for five disaggregated accounts of public spending as well as for aggregate public spending then we use a semi parametric econometric method to isolate the impact of government inefficiency from the inefficiency arising from the socioeconomic environment and luck to verify the validity of our index we use it to examine a number of well established relationships in the public choice literature which have only been tested using local government data

technology choice under several uncertainty sources abstract we analyze a model of irreversible investment with two sources of uncertainty a risk neutral decision maker has the choice between two mutually exclusive projects under input price and output price uncertainty we propose a complete study of the shape of the rational investment region and we prove that it is never optimal to invest when the alternative investments generate the same payoff independently of its size a key feature of this bidimensional degree of uncertainty is thus that the payoff generated by each project is not a sufficient statistic to make a rational investment in this context our analysis provides a new motive for waiting to invest the benefits associated with the dominance of one project over the other as an illustration we apply our methodology to power generation under uncertainty

collusion in second price auctions with heterogeneous bidders abstract we show that efficient collusion by any subset of bidders in second price private value auctions is possible even when the bidders are heterogeneous an important property of efficient collusion is that a bidder s net payoff from participating in collusion is independent of her valuation we show that the cooperative game whose characteristic function evaluated at a coalition is the ex ante collusive surplus of that coalition has a nonempty core a feature of more technical interest is the mechanism characterization when the private information of agents does not enter in a linear or even piecewise linear manner

collusion and signaling in auctions with interdependent values abstract the standard approach to collusion in auctions posits an uninformed disinterested third party who prior to the auction designs and implements a collusive mechanism in environments where collusion agreements are likely to be both proposed and executed by the involved parties this approach may neglect information leakages from simply a proposal to collude we consider a model of collusion where one informed bidder proposes to another as in es and schummer 2004 we allow for general interdependent values and affiliated signals in contrast to third party modeling approaches collusion is inefficient from both a social perspective except for the case of pure common values and from the perspective of the ring both bidders are better off than without colluding but the surplus extracted from the seller is distributed asymmetrically between the bidders the potential for information leakage from proposing is bad for low types who reveal that they are weak competitors but is advantageous for high types because they are able to signal their strength we identify a so called briber s curse whereby acceptance of a proposal causes the proposer to downgrade her expected value for the object when there is additional competition in the form of bidders outside of the cartel the briber s curse significantly harms cartel profits and raises seller revenues

collusive bidder behavior at single object second price and english auctions models of collusive bidder behavior at single object second price and english auctions are provided the ind ependent private values model is generalized to permit the formulatio n of coalitions and a strategic response by the auctioneer cooperati ve strategies are found to be dominant in these models coalitions of any size are viable and the payoff to each member increases with th e size of the coalition in addition the collusive strategies of the coalition represent a noncooperative equilibrium the optimal respon se of the auctioneer is to establish a reserve price that is a functi on of the coalition s size these and other features of the model are found to be consistent with the essential features of actual behavio r copyright 1987 by university of chicago press

sequential investment in renewable energy technologies under policy uncertainty although innovation and support schemes are among the main forces that drive investment in renewable energy re technologies both involve considerable uncertainty we develop a real options framework to analyse the impact of technological policy and electricity price uncertainty on the decision to invest sequentially in successively improved versions of a re technology technological uncertainty is reflected in the random arrival of innovations and policy uncertainty in the likely provision or retraction of a subsidy that takes the form of a fixed premium on top of the electricity price we show that greater likelihood of subsidy retraction provision lowers raises the incentive to invest and by comparing a stepwise to a lumpy investment strategy we show how an embedded option to adopt an improved technology version mitigates the impact of subsidy retraction on investment timing specifically we show how stepwise investment facilitates earlier technology adoption compared to lumpy investment and that under stepwise investment technological uncertainty accelerates technology adoption thus further offsetting the incentive to delay investment in the light of subsidy retraction

modeling long term dynamics of electricity markets in the last decade many countries have restructured their electricity industries by introducing competition in their power generation sectors although some restructuring has been regarded as successful the short experience accumulated with liberalized power markets does not allow making any founded assertion about their long term behavior long term prices and long term supply reliability are now center of interest this concerns firms considering investments in generation capacity and regulatory authorities interested in assuring the long term supply adequacy and the stability of power markets in order to gain significant insight into the long term behavior of liberalized power markets in this paper a simulation model based on system dynamics is proposed and the underlying mathematical formulations extensively discussed unlike classical market models based on the assumption that market outcomes replicate the results of a centrally made optimization the approach presented here focuses on replicating the system structure of power markets and the logic of relationships among system components in order to derive its dynamical response the simulations suggest that there might be serious problems to adjust early enough the generation capacity necessary to maintain stable reserve margins and consequently stable long term price levels because of feedback loops embedded in the structure of power markets and the existence of some time lags the long term market development might exhibit a quite volatile behavior by varying some exogenous inputs a sensitivity analysis is carried out to assess the influence of these factors on the long run market dynamics

the economics of new nuclear power plants in liberalized electricity markets abstract even after fukushima the nuclear debate is strong in many countries with the discussion of its economics being a significant part of it however most of the estimates are based on a levelized cost methodology which presents several shortcomings particularly when applied to liberalized electricity markets our paper provides results based on a different methodology by which we determine the break even investment cost for nuclear power plants to be competitive with other electricity generation technologies our results show that the cost competitiveness of nuclear power plants is questionable and that public support of some sort would be needed if new nuclear power plants are to be built in liberalized markets

valuation of projects for power generation with renewable energy a comparative study based on real regulatory options abstract this comparative study evaluates an investment project on renewable energy based on wind power we have conducted the study in three european union countries denmark finland and portugal we have modelled the main uncertainties that affect this kind of project such as the cost and production of electric power investment costs and consumer price index for each of these countries we have analysed the mechanisms of public support for wind energy we have identified the real options included in the regulatory frameworks of these three countries and assessed how they affect the expanded net present value of the project to this end we have used two different methods of option valuation the monte carlo method and the binomial method we have proved that the obtained results using both methods are quite similar finally we have evaluated the public incentives for wind energy offered in each of these three countries and concluded that in economic terms finland is the country with the strongest support for this kind of energy followed by denmark and in the last place portugal

types of bureaucratic interaction abstract a taxonomy of relationships between a public bureau and its sponsoring institution is modelled within a simple follower leader framework various assumptions are made with respect to who makes the decision about the bureaucratic activity level and with respect to cost information the role played by budgetary slack is emphasized deviations from the socially optimal bureau are identified but no general support is found for the view that bureaus tend to become too big

strategic real option and flexibility analysis for nuclear power plants considering uncertainty in electricity demand and public acceptance nuclear power is an important energy source especially in consideration of co2 emissions and global warming deploying nuclear power plants however may be challenging when uncertainty in long term electricity demand and more importantly public acceptance are considered this is true especially for emerging economies e g india china concerned with reducing their carbon footprint in the context of growing economic development while accommodating a growing population and significantly changing demographics as well as recent events that may affect the public s perception of nuclear technology in the aftermath of the fukushima daiichi disaster public acceptance has come to play a central role in continued operations and deployment of new nuclear power systems worldwide in countries seeing important long term demographic changes it may be difficult to determine the future capacity needed when and where to deploy it over time and in the most economic manner existing studies on capacity deployment typically do not consider such uncertainty drivers in long term capacity deployment analyses e g 40 years to address these issues this paper introduces a novel approach to nuclear power systems design and capacity deployment under uncertainty that exploits the idea of strategic flexibility and managerial decision rules the approach enables dealing more pro actively with uncertainty and helps identify the most economic deployment paths for new nuclear capacity deployment over multiple sites one novelty of the study lies in the explicit recognition of public acceptance as an important uncertainty driver affecting economic performance along with long term electricity demand another novelty is in how the concept of flexibility is exploited to deal with uncertainty and improve expected lifecycle performance e g cost new design and deployment strategies are developed and analyzed through a multistage stochastic programming framework where decision rules are represented as non anticipative constraints this approach provides a new way to devise and analyze adaptation strategies in view of long term uncertainty fluctuations that is more intuitive and readily usable by system operators than typical solutions obtained from standard real options analysis techniques which are typically used to analyze flexibility in large scale irreversible investment projects the study considers three flexibility strategies subject to uncertainty in electricity demand and public acceptance 1 phasing or staging capacity deployment over time and space 2 on site capacity expansion and 3 life extension numerical analysis shows that flexible designs perform better than rigid optimal design deployment strategies and the most flexible design combining the above strategies outperforms both more rigid and less flexible design alternatives it is also demonstrated that a flexible design benefits from the strategies of phasing and capacity expansion most significantly across all three strategies studied the results provide useful insights for policy and decision making in countries that are considering new nuclear facility deployment in light of ongoing challenges surrounding new nuclear builds worldwide

valuing modularity as a real option we provide a general valuation approach for capital budgeting decisions involving the modularization in the design of a system within the framework developed by baldwin and clark baldwin c y k b clark 2000 design rules the power of modularity mit press cambridge ma we implement a valuation approach using a numerical procedure based on the least squares monte carlo method proposed by longstaff and schwartz longstaff f a e s schwartz 2001 valuing american options by simulation a simple least squares approach rev financial stud 14 1 113 147 the approach is accurate general and flexible

optimal bidding in auctions from a game theory perspective abstract the game theoretic perspective in auction bidding has provided a powerful normative framework for the analysis of auctions and it has generated an impressive volume of research contributions tracing this research we review key recent advances which have greatly expanded our understanding of the operation of auctions and produced a more accurate analysis of mechanism design and optimal bidding we follow various experimental studies which have shown that the predictive power of auction theory remains in many cases limited for this reason we concentrate on research themes which enhance the applicability of auction theory leading to more realistic descriptions of bidding behaviors we identify important innovations which expand the environment of auction bidding and carry us beyond rational decision making we conclude providing directions of future research and discussing their implications

leviathan and competition among jurisdictions the case of benefit taxation abstract this paper shows that interjurisdictional competition for mobile factors of production forces the government to raise the efficiency of the public sector and thus helps to tame leviathan governments however this result is derived under some restrictive assumptions concerning the kind of tax policy used by the government in the case of benefit taxes e g user charges a leviathan may be tamed by interjurisdictional competition whereas this is not necessarily true in the case of lum sum taxes

will bounty hunting revenue agents increase enforcement while the final version of the 1986 tax reform act retained budget funding of the irs the senate proposal to finance spending from audit revenues represented a seriously debated alternative that continues to receive attention as a method for increasing enforcement at one level the ultimate failure of the proposal is puzzling given congress s unwillingness to raise tax rates to cover spending the budget deficits of the 1980s must be financed from some other source inflation borrowing or increased enforcement turning the irs into a bounty hunting agency would seem to be a straightforward way of producing extra revenue

large and small baseload power plants drivers to define the optimal portfolios despite the growing interest in small medium sized power plants smpp international literature provides only studies related to portfolios of large plants in infinite markets grids with no particular attention given to base load smpp this paper aims to fill this gap investigating the attractiveness of smpp portfolios respect to large power plant portfolios the analysis includes nuclear coal and combined cycle gas turbines ccgt of different plant sizes the mean variance portfolio theory mvp is used to define the best portfolio according to internal rate of return irr and levelised unit electricity cost luec considering the life cycle costs of each power plant carbon tax electricity price and grid dimension the results show how large plants are the best option for large grids while smpp are as competitive as large plants in small grids in fact in order to achieve the highest profitability with the lowest risk it is necessary to build several types of different plants and in case of small grids this is possible only with smpp a further result is the application of the framework to european oecd countries and the united states assessing their portfolios

a real option model for renewable energy policy evaluation with application to solar pv power generation in china abstract this study proposes a policy evaluation model from the perspective of government and investors the proposed model which integrates american option method and two factor learning curve method can be used to evaluate the unit decision value and save path rate for renewable energy development and examine the existence of balance point of interest several uncertain factors including non renewable energy cost carbon price renewable energy cost and price subsidy are all considered in this model the model has been applied to evaluate the solar photovoltaic pv power generation in china our empirical results show that real option analysis roa is more effective than net present value analysis npv when handling uncertainty under current level of subsidy the government would suffer loss and the investors could benefit so that it is difficult to achieve the balance of interest during the planning period with the reduction of subsidy rate they can achieve the balance of interest

capacity switching options under rivalry and uncertainty abstract deregulated infrastructure industries exhibit stiff competition for market share firms may be able to limit the effects of competition by launching new projects in stages using a two stage real options model we explore the value of such flexibility we first demonstrate that the value of investing in a sequential manner for a monopolist is positive but decreases with uncertainty next we find that a typical duopoly firm s value relative to a monopolist s decreases with uncertainty as long as the loss in market share is high intriguingly this result is reversed for a low loss in market share we finally show that this loss in value is reduced if a firm invests in a sequential manner and specify the conditions under which sequential capacity expansion is more valuable for a duopolist firm than for a monopolist

income risk of eu coal fired power plants after kyoto coal fired power plants enjoy a significant advantage relative to gas plants in terms of cheaper fuel cost this advantage may erode or turn into disadvantage depending on co2 emission allowance price financial risks are further reinforced when the price of electricity is determined by natural gas fired plants marginal costs we aim to empirically assess the risks in eu coal plants margins up to the year 2020 parameter values are derived from actual market data monte carlo simulation allows compute the expected value and risk profile of coal plants earnings future allowance prices may spell significant risks on utilities balance sheets

a real options model for renewable energy investment with application to solar photovoltaic power generation in china this paper proposes a real options model for evaluating renewable energy investment by considering uncertain factors such as co2 price non renewable energy cost investment cost and market price of electricity a phase out mechanism is built into the model to reflect the long term changes of subsidy policy we apply the proposed model to empirically evaluate the investment value and optimal timing for solar photovoltaic power generation in china our empirical results show that the current investment environment in china may not be able to attract immediate investment while the development of carbon market helps advance the optimal investment time a sensitivity analysis is conducted to investigate the dynamics of investment value and optimal timing under the changes of unit generating capacity subsidy level market price of electricity co2 price and investment cost it is found that the high investment cost and the volatility of electricity and co2 prices are not conducive to attract immediate investment instead increasing the level of subsidy promoting technological progress and maintaining the stability of market are useful to stimulate investment

bribing and signaling in second price auctions abstract we examine whether a two bidder second price auction for a single good with private independent values is immune to a simple form of collusion where one bidder may bribe the other to commit to stay away from the auction i e submit a bid of zero in either of two cases where the potential bribe is fixed or allowed to vary the only robust equilibria involve bribing in the fixed bribe case there is a unique such equilibrium in the variable bribes case all robust equilibria involve low briber types revealing themselves through the amount they offer while all high types offer the same bribe only one such equilibrium is continuous bribing in all cases causes inefficiency

niskanen effects in the california community colleges the regression results of this paper show that bureaucrats act to maximize both their outputs and their discretionary budgets as predicted by niskanen for demand constrained conditions but the evidence does not confirm the niskanen hypothesis concerning chronic oversupply by bureaus further the evidence here shows that the discretionary budgets of bureaus may not fall to zero as suggested by niskanen instead it would appear that given severe budget constraint bureaus may not produce an excess supply of output and may cut costs in an effort to maintain a positive discretionary budget balance

choice of nuclear power investments under price uncertainty valuing modularity this work aims at examining how to compare two investment projects in the electricity market the first project is a flexible sequence of small nuclear power plants whereas the second is a nuclear power plant of large capacity we measure the option value generated by the modularity of the first project given the uncertain future competitive price of electricity using a realistic calibration of the model we show that the option value of modularity has a sizeable effect on the optimal dynamic strategy of the producer in particular in terms of the optimal timing of the decision to invest in the first module

energy security and improvements in the function of diversity indices taiwan energy supply structure case study abstract facing the risk and uncertainty inherent in social and economic development many countries have adopted an energy supply diversification strategy in their energy security policy to control the energy import risk and cost to ensure that sufficient energy can be obtained at an affordable price level diversification helps the energy system respond to external changes and shocks diversification can also lessen the vulnerability of a single energy source to supply shocks and the market power of various energy supply sources this study develops the diversity reliability index and co vary diversity reliability index based on the hirschman herfindahl and shannon wiener indices investigates the contribution of different energy sources to the energy system and analyzes the covariance between various energies and their impacts on energy security to determine the impact of energy diversity in reducing the risk of energy supply shortages and cost fluctuations

bureaucrats legislators and the size of government some recent theories have blamed the growth of government on budget maximizing bureaucrats who are assumedly capable of imposing their most preferred budget output combination on legislatures subject to cost and demand constraints however theoretical examination of the range of bargaining outcomes that might occur between bureau and legislature shows that budget maximizing behavior does not necessarily lead to super optimal levels of production nor do the suggested reforms of competition and privatization necessarily improve the situation in this bargaining model the central determinants of governmental growth are not budget maximizing bureaucrats but the legislature s decisions regarding mode of oversight and form of internal organization

nuclear reactors construction costs the role of lead time standardization and technological progress this paper provides the first comparative analysis of nuclear reactor construction costs in france and the united states studying the cost of nuclear power has often been a challenge owing to the lack of reliable data sources and heterogeneity between countries as well as the long time horizon which requires controlling for input prices and structural changes we build a simultaneous system of equations for overnight costs and construction time lead time to control for endogeneity using expected demand variation as an instrument we argue that benefits from nuclear reactor program standardization can arise through short term coordination gains when the diversity of nuclear reactors technologies under construction is low or through long term benefits from learning spillovers from past reactor construction experience if those spillovers are limited to similar reactors we find that overnight construction costs benefit directly from learning spillovers but that these spillovers are only significant for nuclear models built by the same architect engineer a e in addition we show that the standardization of nuclear reactors under construction has an indirect and positive effect on construction costs through a reduction in lead time the latter being one of the main drivers of construction costs conversely we also explore the possibility of learning by searching and find that contrary to other energy technologies innovation leads to construction costs increases

modeling government behavior in collective bargaining a test for self interested bureaucrats this paper tests for self interested behavior by local government bureaucrats engaged in collective bargaining with public employee unions a theoretical model is developed that shows the effect of niskanen style bureaucratic self interest in the two standard bargaining models the demand constrained model and the efficient bargain model these predictions are then tested using national cross section data on unionized police fire and sanitation workers

bribing in first price auctions abstract i study a symmetric 2 bidder ipv first price auction prior to which one bidder can offer his rival a bribe in exchange for the latter s abstention i focus on pure and undominated strategies and on continuous monotonic equilibria equilibria in which the bribing function is continuous and nondecreasing when types are distributed continuously on the unit interval such an equilibrium if it at all exists is necessarily trivial its bribing function is identically zero i provide a sufficient condition for its existence and sufficient conditions for its nonexistence when the minimum type is strictly positive a non trivial equilibrium may exist but it must be pooling i provide a sufficient condition for the existence of such an equilibrium when types are distributed continuously on the unit interval and dominated strategies are allowed a non trivial non pooling equilibrium exists at least under the uniform prior

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

private monitoring in auctions abstract we study infinitely repeated first price auctions in which a bidder only learns whether or not he won the object while repetition of the stage game equilibrium is the unique nash equilibrium in public strategies with patient bidders there are simple nash equilibria in private strategies that improve on bid rotation sequential rationality is appropriately captured by essentially perfect bayesian equilibrium epbe which ignores behavior after irrelevant histories our main result is the construction of epbea that improve upon bid rotation assuming symmetry the exclusionary schemes of skrzypacz and hopenhayn tacit collusion in repeated auctions j econ theory 114 2004 153 169 including asymptotically efficient ones are supported as epbea

low or no subsidy proposing a regional power grid based wind power feed in tariff benchmark price mechanism in china abstract the chinese government plans to adopt a low or no subsidy policy mechanism on renewable energy power development in the future to achieve a balance between reducing financial burden on the government and ensuring profitability of investors as well as to account for the regional differences in china a novel regional wind power grid feed in tariff benchmark price mechanism by net present value npv method and real option ro method is proposed in this paper the results voice support on the appropriateness of gradually decreasing the wind feed in tariff fit benchmark price to as low as the coal fired fit the proposed fit price level is presented as a price range on the basis of a guaranteed internal rate of return irr falls in between 8 to 15 for wind power investors the results indicate that the current fit price should be readjusted and redistributed although the fit price in central and south china grids is recommended to be relatively high the npv of wind farm project value in six regional grids are at the same level

risk aversion and technology mix in an electricity market this article analyzes the eff ect of risk and risk aversion on the long term equilibrium technology mix in an electricity market it develops a model where fi rms can invest in baseload plants with a fi xed variable cost and peak plants with a random variable cost and demand for electricity varies over time but is perfectly predictable at equilibrium the electricity price is partly determined by the random variable cost and the returns from the two kinds of plants are negatively correlated when the variable cost of the peak technology is high the return of peak plants is low but the return to baseload plants is high risk averse fi rms reduce the capacity of the riskiest technology and develop the capacity of the other compared to risk neutral fi rms in the particular case where a risk neutral fi rm invests heavily in baseload technology and only sparely in peak capacity a risk averse fi rm would invest less in baseload increase peak capacity and increase total installed capacity

economics of nuclear and renewables abstract this paper provides an assessment of the economic challenges faced by both nuclear power and new renewable electricity technologies the assessment reflects the need to incorporate new renewables into power grids and issues faced in dispatching power and their effect on traditional electricity technologies as well as the need for transmission extension and or grid reinforcement wider introduction of smart grids and the likely demise of nuclear in some oecd countries are bound to enhance the future prospects for new renewables however their immediate future expansion will depend on continued subsidies which are becoming difficult to sustain in present economic circumstances development of large energy storage facilities and carbon pricing could significantly enhance future renewable energy prospects correspondingly expanding renewable energy in spite of their popularity with some governments and sections of the public is likely to face challenges which will slow their present rapid progress nuclear is now shied away from in many industrialized countries and having mixed prospects in developing economies in many instances it suffers from high initial costs long lead times and often excessive construction delays nuclear power also faces challenging risks investment as well as regulatory in contrast to renewables its share of global energy consumption is declining

fuel mix diversification incentives in liberalized electricity markets a mean variance portfolio theory approach monte carlo simulations of gas coal and nuclear plant investment returns are used as inputs of a mean variance portfolio optimization to identify optimal base load generation portfolios for large electricity generators in liberalized electricity markets we study the impact of fuel electricity and co2 price risks and their degree of correlation on optimal plant portfolios high degrees of correlation between gas and electricity prices as observed in most european markets reduce gas plant risks and make portfolios dominated by gas plant more attractive long term power purchase contracts and or a lower cost of capital can rebalance optimal portfolios towards more diversified portfolios with larger shares of nuclear and coal plants

bidder collusion at forest service timber sales allegations of bidder collusion at forest service timber sales in the pacific northwest were common in the 1970s of course prices may be low for reasons other than collusion we formulate an empirical model that allows for both bidder collusion and supply effects and in which we control for demand conditions noncooperative behavior in which a single unit is sold the standard auction model is a special case it is found to be definitively outperformed by a model of collusion we also find that supply effects are dominated by collusion in determining the winning bids in the market

the effects of multiple objectives in the theory of public sector supply this paper incorporates objectives of both legislators and bureaucrats in a model of public sector decisionmaking existing models assume that either bureaucrats control production information and decisions niskanen type models or legislators control production decisions legislative models my model explicitly incorporates imperfect agent behavior and corresponding preferences of both legislators and bureaucrats to reflect the bilateral nature of appropriations the analysis shows that output levels generally differ from politically and socially efficient levels and depend on the relative weights of legislative and bureaucratic interests accordingly niskanen type and legislative models are viewed as special cases of this more general approach

institutional arrangements and the quality of publicly provided goods a tentative note there are considerable differences in the quality of publicly provided goods a simple model is presented to explain these observations by differences in institutional arrangements without having to rely on eventual differences in the relative preferences of bureaucrats and politicians

diversity and ignorance in electricity supply investment addressing the solution rather than the problem the need for diversity has been cited as a rationale for important recent investment decisions in the uk electricity supply sector it is invoked as the principal argument for continuing major government intervention yet there exists no formal analytical basis for the concept why is diversity good what is meant by diversification what is it that must be diversified what trade off should be struck between diversity and other measures of performance the resulting ambiguity causes confusion and is vulnerable to special pleading despite this this paper argues that diversification offers a superior alternative to probabilistic approaches towards uncertainty and ignorance in electricity supply investments and proposes a formal analytical approach a quantitative index of diversity is borrowed from information theory and used to derive a value for the government s implicit willingness to pay for diversity in the uk electricity supply mix this is then applied in a pilot exercise to the problem of optimizing the diversity and financial performance of the supply portfolio although provisional the results are relevant to the government s forthcoming nuclear review particularly in assessing the relative levels of support for nuclear power and renewable energy

valuing investment decisions of renewable energy projects considering changing volatility abstract volatility is an important parameter when evaluating investments using the real options method for renewable energy investments the volatility of cash flow continuously changes because as new information and knowledge are gathered there is less foreseen variation this paper proposes an extended recombining trinomial tree model where the changing volatility is used to generate transition probabilities the changing volatility is generated using a consolidation process where multiple random variables including the market price of electricity carbon price and lending rate are integrated into a low dimension stochastic process a two factor learning curve is used to model the changes of investment cost we apply the proposed model to analyze solar photovoltaic pv power generation investment in china the results show volatility with changing feature compared with constant volatility changing volatility may advance investment decisions and change the project value complete grid parity policy in the solar pv industry is infeasible because the opportunity cost brought by the option of delaying cannot be offset the changing volatility may produce a lower and equally effective subsidy level compared with constant volatility a carbon emission trading scheme is helpful in advancing investments in renewable energy which is reflected in improvements in project value advancements in investment decisions and reductions in the required subsidy level

nuclear power understanding the economic risks and uncertainties abstract this paper identifies the fundamental elements and critical research tasks of a comprehensive analysis of the costs and benefits of nuclear power relative to investments in alternative baseload technologies the proposed framework seeks to i identify the set of expected parameter values under which nuclear power becomes cost competitive relative to alternative generating technologies ii identify the main risk drivers and quantify their impacts on the costs of nuclear power iii estimate the nuclear power option value iv assess the nexus between electricity market structure and the commercial attractiveness of nuclear power v evaluate the economics of smaller sized nuclear reactors vi identify options for strengthening the institutional underpinnings of the international safeguards regime and vii evaluate the proliferation resistance of new generation reactors and fuel cycles

equilibria of the sealed bid mechanism for bargaining with incomplete information we study the nash equilibria of the sealed bid bargaining mechanism with incomplete information a nonzero sum game for the case of uniform priors we describe two uncountably numerous families of equilibria the first has differentiable strategies in the second the strategies are step functions the efficiencies of these equilibria range from second best to zero for independent nonuniform priors we show that a similar situation obtains these results seem discouraging with regard to using the sealed bid mechanism in practice the mechanism might be salvaged however if bargainers turn out to confine themselves to linear strategy equilibria

a model of sequential investment abstract this paper specifies a model of a two stage sequential investment where the stages take time to complete it presents algebraic solutions for an individual firm s optimal sequential investment with costless suspension without suspension in the intermediate case of costly suspension and for aggregate investment with suspension the first stage trigger is below the second stage trigger for sufficiently long lags and high levels of output price uncertainty thus the firm may carry out exploratory investment we also evaluate the comparative statics of investment and show how the patterns of project costs and lags affect the incentive to invest

simple collusive agreements in one shot first price auctions abstract the paper demonstrates that collusion in a private value first price auction is likely to occur even in a one shot interaction the strategies of the colluding parties must be mixed since agreeing to submit a bid equal to the reservation price of the seller provides the incentive for that bidder to cheat on the designated winner we deal with a complete information environment with arbitrary number of bidders we characterize the sensible equilibrium outcome where the two bidders with the highest valuations collude we show that the equilibrium outcome is unique and that the probability of collusion exceeds 1 2

first price auctions in the asymmetric n bidder case i consider the first price auction when the bidders valuations may be differently distributed i show that every bayesian equilibrium is an essentially pure equilibrium formed by bid functions whose inverses are solutions of a system of differential equations with boundary conditions i then prove the existence of an equilibrium i prove its uniqueness when the valuation distributions have a mass point at the lower extremity of the support i give sufficient conditions for uniqueness when every valuation distribution is one of two atomless distributions i establish inequalities between equilibrium strategies when relations of stochastic dominance exist between valuation distributions

collusion and information revelation in auctions abstract the theoretical literature on collusion in auctions suggests that the first price mechanism can deter the formation of bidding rings however such analyses neglect to consider the effects of failed collusion attempts wherein information revealed in the negotiation process may affect bidding behaviour we experimentally test a setup in which theory predicts no collusion and no information revelation in first price auctions the results reveal a hitherto overlooked failing of the first price mechanism failed collusion attempts distort bidding behaviour resulting in a loss of seller revenue and efficiency moreover the first price mechanism does not result in less collusion than the second price mechanism we conclude that while the features of the first price mechanism may have the potential to deter bidder collusion the role of beliefs in guiding bidding behaviour make it highly susceptible to distortions arising from the informational properties of collusive negotiation auction designers should take this phenomenon into account when choosing the auction mechanism

institutions efficiency and the strategic behaviour of sponsors and bureaus abstract the over production associated with bureaucratic production is examined in a general equilibrium environment in which the bureau and its sponsor behave strategically seemingly minor modifications in institutional settings give major differences in nash equilibrium outcomes the non equivalence of institutional settings suggests that over production or under production by bureaus can be a result of the institutions governing the decision process as well as the preferences of the bureau for the size of the bureau

public sector efficiency the roles of political and budgetary institutions fiscal capacity and democratic participation the purpose of this paper is to investigate whether efficiency in public service provision is affected by political and budgetary institutions fiscal capacity and democratic participation in order to address this issue we take advantage of a new global efficiency measure for norwegian local governments we find that high fiscal capacity and a high degree of party fragmentation contribute to low efficiency in addition there is some evidence that democratic participation increases efficiency while a centralized top down budgetary procedure is associated with low efficiency

entry into the electricity market uncertainty competition and mothballing options the present paper analyzes the entry strategies into the electricity market of two firms that have power plants under price uncertainty and competition we consider the symmetric and asymmetric two firms which have either a thermal power plant or a nuclear power plant the differences between the thermal power plant and the nuclear power plant such as the cost structure and operational flexibility are modeled the threshold values of market entry are calculated for each firm with either the thermal power plant or the nuclear power plant as the leader or the follower we show the dependence of cost structures on entry thresholds of the leader and the follower into the electricity market for various market and cost conditions the diagrams of the leader are also shown

markov perfect equilibrium in multi period games between sponsor and bureau we formulate a simple model of the interaction between a sponsor and a bureau the sponsor sets the bureau s budget while the bureau decides on how much to spend on slack we compute numerically markov perfect equilibria of multi period games where the agents move alternately and apply markov strategies both agents are worse off compared to the one period game with simultaneous moves as the discount factors increase the equilibrium outcome becomes less cooperative in nature

using renewables to hedge against future electricity industry uncertainties an australian case study abstract a generation portfolio modelling was employed to assess the expected costs cost risk and emissions of different generation portfolios in the australian national electricity market nem under highly uncertain gas prices carbon pricing policy and electricity demand outcomes were modelled for 396 possible generation portfolios each with 10 000 simulations of possible fuel and carbon prices and electricity demands in 2030 the lowest expected cost generation portfolio includes 60 renewable energy increasing the renewable proportion to 75 slightly increased expected cost by 0 2 mwh but significantly decreased the standard deviation of cost representing the cost risk increasing the renewable proportion from the present 15 to 75 by 2030 is found to decrease expected wholesale electricity costs by 17 mwh fossil fuel intensive portfolios have substantial cost risk associated with high uncertainty in future gas and carbon prices renewables can effectively mitigate cost risk associated with gas and carbon price uncertainty this is found to be robust to a wide range of carbon pricing assumptions this modelling suggests that policy mechanisms to promote an increase in renewable generation towards a level of 75 by 2030 would minimise costs to consumers and mitigate the risk of extreme electricity prices due to uncertain gas and carbon prices

bribing in first price auctions corrigendum abstract we clarify the sufficient condition for a trivial equilibrium to exist in the model of rachmilevitch 2013

preemption and rent dissipation under price competition abstract we study a simple duopoly model of preemption with multiple investments and instantaneous price competition on a market of finite size driven by stochastic taste shocks different patterns of equilibria may arise depending on the importance of the real option effect if the average growth rate of the market is close to the risk free rate or if the volatility of demand shocks is high no dissipation of rents occurs in equilibrium despite instantaneous price competition if these conditions do not hold the equilibrium investment timing is suboptimal and the firms long run capacities may depend on the initial market conditions our conclusions contrast sharply with standard rent dissipation results

investments of uncertain cost abstract this paper examines irreversible investment decisions when projects take time to complete and are subject to two types of cost uncertainty the first is technical uncertainty i e uncertainty over the physical difficulty of completing a project which is only resolved as the investment proceeds the second is input cost uncertainty i e uncertainty over the prices of construction inputs or over government regulations affecting construction costs which is external to the firm these two types of uncertainty have very different effects on the investment decision a simple investment rule is derived that maximizes firm value and is used to analyze the decision to start or continue building a nuclear power plant during the 1980s

a monte carlo based decision support tool for assessing generation portfolios in future carbon constrained electricity industries abstract this paper presents a novel decision support tool for assessing future generation portfolios in an increasingly uncertain electricity industry the tool combines optimal generation mix concepts with monte carlo simulation and portfolio analysis techniques to determine expected overall industry costs associated cost uncertainty and expected co 2 emissions for different generation portfolio mixes the tool can incorporate complex and correlated probability distributions for estimated future fossil fuel costs carbon prices plant investment costs and demand including price elasticity impacts the intent of this tool is to facilitate risk weighted generation investment and associated policy decision making given uncertainties facing the electricity industry applications of this tool are demonstrated through a case study of an electricity industry with coal ccgt and ocgt facing future uncertainties results highlight some significant generation investment challenges including the impacts of uncertain and correlated carbon and fossil fuel prices the role of future demand changes in response to electricity prices and the impact of construction cost uncertainties on capital intensive generation the tool can incorporate virtually any type of input probability distribution and support sophisticated risk assessments of different portfolios including downside economic risks it can also assess portfolios against multi criterion objectives such as greenhouse emissions as well as overall industry costs

evaluating replacement project of nuclear power plants under uncertainty this paper investigates the valuation of a replacement project of nuclear power plants under the deregulated electricity market the replacement project consists of two components the decision to decommission an existing plant and the decision to construct a new plant in the replacement project the decommissioning decision should be made considering not only the profitability of the existing plant but also the profitability and costs of the construction of the new plant real options theory is used to determine the optimal timing of the decommissioning and construction in order to examine the effect of decommissioning time and decision making one we consider a time lag for these decision making times we show the dependence of the replacement project value on uncertainty and time lag

a positive model of reserve requirements and interest on reserves a clearinghouse interpretation of the federal reserve system this paper develops a positive model of reserve requirements and interest on reserves based on the observation that congress exempted the fed from a legal restriction that had prevented private clearinghouses from issuing their own currency eliminating the restriction provided the fed with a source of revenue that could be used to finance general government outlays and to pay implicit interest on reserves the model implies that the government s financing requirements help explain reserve requirement movements and that interest rates on reserves vary with market loan rates cointegration error correction and granger causality tests provide supporting evidence

optimal fuel mix in chp plants under a stochastic permit price risk neutrality versus risk aversion abstract this paper studies the optimal fuel mix of a chp producer under emission permit price risk the producer s multi fuel plant uses two co2 intensive fuels and one clean fuel using a mean variance framework we develop three models the models are divided into spot models risk neutral and risk averse cases and a forward model risk averse case we derive the effects of price risk on optimal fuel use an increase in price risk can in fact increase the use of co2 intensive fuel in the spot model in the forward model the production and financial decisions are separate we also evaluate the risk bearing behavior of seven finnish chp producers we found that risk neutrality describes behavior better than risk aversion

bribing in second price auctions an ipv 2 bidder second price auction is preceded by two rounds of bribing prior to the auction each bidder can try to bribe his rival to depart from the auction so that he the briber will become the sole participant bribes are offered sequentially according to an exogenously given order restricting attention to pure strategies and imposing a certain refinement i study the efficient equilibria of this game in any such equilibrium whenever the first mover offers a strictly positive bribe this bribe is given by his surplus his valuation minus the payoff that he would have received in the dominant strategy equilibrium of the auction i derive a necessary and sufficient condition for the existence of such an equilibrium i also extend this equilibrium s construction to a model with general valuations not necessarily ipv