an experimental investigation of the hahn noll revenue neutral auction for emissions licenses abstract this paper reports on three series of laboratory experiments designed to test the performance of the hahn noll revenue neutral auction rna an alternative institution a no rebate uniform price auction upa is also examined as a benchmark in these experiments the rna markets were little different from upa markets in terms of either prices or market efficiencies the two institutions did differ in terms of the distribution of the gains from exchange and of the propensity of bidders to engage in a certain type of overbidding

regime switching and the in stability of the price rent relationship evidence from the us present value models of house prices assert that in the absence of self fulfilling bubbles a house price is equal to the present discount value of all future rents which implies a linear relationship between house price and rent and hence a stable price to rent ratio using a markov switching error correction model we re examine this relationship in the us housing market and find two distinctive regimes one with a long run relation between house price and rent predicted by the present value models and the other in which the relation is nonlinear furthermore we find evidence that deviations of house prices from the present value models predictions are caused by the overreaction of house prices to movements in rents rather than speculative bubbles attributable to extraneous factors

efficient mechanisms for bilateral trading we consider bargaining problems between one buyer and one seller for a single object the seller s valuation and the buyer s valuation for the object are assumed to be independent random variables and each individual s valuation is unknown to the other we characterize the set of allocation mechanisms that are bayesian incentive compatible and individually rational and show the general impossibility of ex post efficient mechanisms without outside subsidies for a wide class of problems we show how to compute mechanisms that maximize expected total gains from trade and mechanisms that can maximize a broker s expected profit journal of economic literature classification number 026

dynamic behavior of co2 spot prices co2 emission allowances are traded nowadays over the counter otc and on exchanges across the european union eu it thus becomes increasingly important for traders of these emission certificates to have a valid co2 spot price model to value potential derivatives in addition co2 emitting companies require an adequate co2 spot price model in order to better assess their production costs and support emissions related investment decisions however sufficient price history is still lacking for the european union emission trading scheme eu ets we therefore present a tractable stochastic equilibrium model reflecting stylized features of the eu ets and analyze the resulting co2 spot price dynamics our main findings are that co2 prices do not have to follow any seasonal patterns discounted prices should possess the martingale property and an adequate co2 price process should exhibit a time and price dependent volatility structure a brief empirical examination regarding market efficiency complements our analysis

detecting periodically collapsing bubbles a markov switching unit root test this paper addresses the problem of testing for the presence of a stochastic bubble in a time series in the case that the bubble is periodically collapsing so that the asset price keeps returning to the level implied by the market fundamentals as this is essentially a problem of identifying the collapsing periods from the expanding ones we propose using a generalization of the dickey fuller test procedure which makes use of the class of markov regime switching models the potential of the new methodology is illustrated via simulation and an empirical example is given copyright 1999 john wiley sons ltd

the effects of nonstationarities on performance in call markets abstract this experiment investigates the responsiveness of laboratory call markets to repetitive systematic shocks in underlying demand or supply conditions results of nine call markets conducted under three treatment conditions are compared with nine previously reported double auctions the informationally sparse call auctions perform no worse than the double auctions allocative efficiency is similar across institutions and call markets appear to track underlying equilibrium price movements more accurately than double auctions

attitudes toward risk and compliance in emission permit markets we investigate the effects of uncertainty and concomitant risk aversion as they impact the incentive structure and subsequent operation of an emissions permit market modeled after the u s s02 market our theoretical results suggest that uncertainty dulls incentives to achieve cost savings through permit trading and inhibits efficient allocation of abatement efforts by firms we test hypotheses in an experimental laboratory setting and find that the irreversibility of investment in abatement technology may present countervailing incentives for potential sellers of permits resulting in a wait and see attitude toward adoption of efficient levels of abatement technology

experimental comparison of impact of auction format on carbon allowance market abstract carbon allowances auctions are a good way to achieve the carbon allowance allocations under international agreements to address global climate change based on an economic experiment this paper compares three possible carbon allowance auction formats uniform price auction discriminatory price auction and english clock auction with heterogeneous bidders coal power plants and gas power plants from four perspectives carbon price auction efficiency demand withholding and fluctuations in power supplies possibilities of collusion among bidders and impacts of allowance banking and penalty price on bidders behaviors under different auction formats are also examined the results show that 1 when there are relatively more bidders and there are no obvious communications between them despite there being some tacit collusion efficiency of english clock auction is greater than the other two formats 2 when there are relatively fewer bidders and there are obvious communications between them explicit collusions are observed under english clock auction in this case discriminatory price auction helps prevent collusion to some extents 3 in the banking scenario more speculations are observed while penalty price exacerbates price volatility

periodically expanding discounted debt a threat to fiscal policy sustainability this paper models the behaviour of discounted us debt using a markov switching time series model the significance of modelling fiscal policy within this framework derives from the implications it has for long term sustainability the two regime framework used in this paper identifies periods where the present value of us federal debt is expanding versus periods when it is collapsing using an updated data series from hamilton and flavin 1986 a test is conducted to establish if the expanding periods pose a threat to the long run sustainability of fiscal policy for the usa it is found that they do not copyright 2005 john wiley sons ltd

an experimental investigation of the patterns of international trade this study is the first attempt to create and study a laboratory economy with some of the prominent features of an international economic system the concept of multiple countries in which each country has its own technology preferences and resource endowments is introduced and operationalized the questions posed in the study are related to the law of comparative advantage factor price equalization terms of trade efficiency in production and exchange as guided by multiple and interacting markets and the effects of tariffs on international transactions the study builds on previous work in the experimental study of general equilibrium phenomena

on rational bubbles and fat tails this paper addresses the statistical properties of time series driven by rational bubbles a la blanchard and watson 1982 using insights on the behavior of multiplicative stochastic processes we demonstrate that the tails of the unconditional distribution emerging from such bubble processes follow power laws exhibit hyperbolic decline more precisely we find that rational bubbles predict a fat power tail for both the bubble component and price differences with an exponent smaller than 1 the distribution of returns is dominated by the same power law over an extended range of large returns although power law tails are a pervasive feature of empirical data these numerical predictions are in disagreement with the usual empirical estimates it therefore appears that exogenous rational bubbles are hardly reconcilable with some of the stylized facts of financial data at a very elementary level

can double auctions control monopoly and monopsony power in emissions trading markets abstract we conduct a laboratory experiment to investigate whether the double auction institution can suppress market power in emissions trading markets we study 24 markets with varying market structure in a aba crossover design which controls for subject effects we find clear evidence of successful use of market power average prices rise under monopoly and fall under monopsony opening prices are affected much more than closing prices profits are redistributed in favor of the agent with power efficiency is not affected significantly analysis of convergence trends suggests that this is not a transitory phenomenon we interpret our results as evidence of successful price discrimination within a double auction market

do rice prices follow a random walk evidence from markov switching unit root tests for asian markets this study revisits the issue of mean reversion in the import rice prices of six asian countries over the period between 1995 and 2015 augmented dickey fuller tests with a conventional linear regression model support the presence of a unit root in the levels of the price data however when regressions allow for markov switching in coefficients and variances to capture periodic shifts in levels and volatilities there is strong evidence against the unit root null hypothesis in favor of stationarity over much of the observation period

are there bubbles in the sterling dollar exchange rate new evidence from sequential adf tests there has been mixed evidence regarding the existence of rational bubbles in the foreign exchange markets this paper introduces recently developed sequential unit root tests into the analysis of exchange rates bubbles we find strong evidence of explosive behavior in the nominal sterling dollar exchange rate however this explosive behavior should not be simply interpreted as evidence of rational bubbles as we show that it might be driven by the relative prices of traded goods

the debate about the revived bretton woods regime a survey and extension of the literature this paper surveys the literature dealing with the thesis put forward by dooley folkerts landau and garber dfg that the present constellation of global exchange rate arrangements constitutes a revived bretton woods regime dfg also argue that the revived regime will be sustainable despite its large global imbalances while much of the literature generated by dfg s thesis points to specific differences between the earlier regime and revived regime that render the latter unstable we argue that an underlying similarity between the two regimes renders the revived regime unstable specifically to the extent that the present system constitutes a revived bretton woods system it is vulnerable to the same set of destabilizing forces including asset price bubbles and global financial crises that marked the latter years of the earlier regime leading to its breakdown we extend the markov switching model to examine the relation between global liquidity and commodity prices we find evidence of commodity price bubbles in both the latter stages of the earlier bretton woods regime and the revived regime

electricity generation from renewables in madagascar opportunities and projections climate change is the greatest challenge of our time for development adaptation to this change combined with the reduction of greenhouse gas emissions can help to boost the economic transformation which stimulates growth fills the energy gap and reduces poverty this paper focuses on the potential of renewable energy sources res for electricity generation in madagascar which is a lower income country a large accessibility to electricity could be a driving force for the economic development of this fourth worldwide island the electricity mix is currently heavily dependent to fossil fuel imports indeed most of the electric demands are fulfilled by diesel power plants an overview of the power situation and renewable energy potential of madagascar is first presented then different scenarios for the evolution its electricity mix are proposed

valuing options in water markets a laboratory investigation risk and reliability dominate water supply discussions in the arid western united states due to increasing demand and finite weather dependent supply water markets have evolved in this region so agencies could meet this growing demand in a few instances water agencies turned to contractual mechanisms such as options to manage supply as demand continues to grow option markets and other novel approaches to allocating water may become increasingly popular we utilize experimental economics to analyze the effect of annual options on water markets in the absence of sufficient real world data for conventional econometric analysis we find gains from trade are higher when options can be traded additionally gains are more evenly distributed particularly with a dominant buyer and many sellers findings suggest option markets may be a viable choice as policymakers prepare for future droughts

when will occur the crude oil bubbles abstract in this paper we apply a recursive unit root test to investigate whether there exist multiple bubbles in crude oil price the method is best suited for a practical implementation of a time series and delivers a consistent date stamping strategy for the origination and termination of multiple bubbles the empirical result indicates that there exist six bubbles during 1986 2016 when the oil price deviate from its intrinsic value based on market fundamentals specifically oil price contains the fundamentals and bubble components the dates of the bubbles correspond to specific events in the politics and financial markets the authorities should actively fight speculative bubbles or just observe their evolutions and speculation activities may decrease which is favour of the stabilisation of the staple commodities including crude oil price these findings have important economic and policy implications to recognise the cause of bubbles and take corresponding measures to reduce the impact on the real economy cause of the fluctuation of crude oil price

new directions in emissions trading the potential contribution of new institutional economics abstract once an arcane topic even among environmental economists emissions trading systems have substantially increased during this past decade in the usa moreover the implementation of these systems has necessitated increased involvement of professionals in many fields besides economics this paper reviews the practical experience of the six major types of emissions trading systems focusing on credit market development participation and results including transaction costs five more recent applications of emissions trading also are considered as well as the possibility of inter pollutant trading while inter pollutant trading has been successfully used for chlorofluorocarbons cfcs the applicability of this experience is probably very limited additionally it would be highly premature to attempt an evaluation of these newer emissions trading systems some of which have yet to be even partially implemented in order to improve these latter and future programs the paper considers the potential contribution of the new institutional economics nie to emissions trading the nie is used to develop theoretical insights and a series of predictions about the performance of a range of emissions trading systems

permit price dynamics in the u s so2 trading program a cointegration approach the aim of this paper is to study empirically the determination and the dynamic behavior of the so2 permit prices previous research focused on ex post market price analysis without taking weather conditions into account therefore this study attempts to fill a gap in the literature by providing new empirical evidence on the so2 price evolution and its interactions with macroeconomic variables microeconomic variables and climate variables using monthly data from january 1995 to december 2006 our estimation results indicate the existence of a long term relationship between so2 permit price scrubbing costs industrial production and weather conditions in the short run so2 permit price is affected by scrubbing costs energy prices and weather conditions policy makers and private investors could benefit from the findings of this study that provides useful information on the characteristics of the so2 market and may plan their strategy

incentives for investment in advanced pollution abatement technology in emission permit markets with banking we examine the incentives that firms have to invest in cleaner abatementtechnology when the banking of permits is allowed in emission permittrading schemes we show that under certainty permit banking can distortincentives for investment and lead to a sub optimal amount of investmentspending under imperfect information aggregate abatement costuncertainty and investment irreversibility provide arguments for allowingbanking we generalize the model to consider these showing that somebanking is desirable but that it need not be the case that the privatebanking solution is optimal

the advantage of resource queues over spot resource markets decision coordination in experiments under resource uncertainty farmers have to make key decisions such as which crops to plant or whether to prepare the soil before knowing how much water they will get they face losses if they make costly decisions but do not receive water and they may forego profits if they receive water without being prepared we consider the coordination of farmers decisions such as which crops to plant or whether to prepare the soil when farmers must divide an uncertain water supply we compare ex ante queues pre decision to an ex post spot market post decision post rain in experiments in rural brazil and a university in england queues have greater coordination success than does the spot market

investment incentives under emission trading an experimental study this paper presents the results of an experimental investigation on incentives to adopt advanced abatement technology under emissions trading our experimental design mimics an industry with small asymmetric polluting firms regulated by different schemes of tradable permits we consider three allocation auction policies auctioning off costly permits through an ascending clock auction grandfathering permits with re allocation through a single unit double auction and grandfathering with re allocation through an ascending clock auction our results confirm both dynamic and static theoretical equivalence of auctioning and grandfathering we nevertheless find that although the market institution used to reallocate permits does not impact the dynamic efficiency from investment it affects the static efficiency from permit trading

speculative bubbles in u k house prices some new evidence in this article we test the view widely held among both academics and practitioners that speculative bubbles have characterized the time series behavior of u k house prices in recent times we motivate our empirical analysis using a stylized overlapping generations model which generates a housing demand function of the form assumed by a large literature illustrating how rational bubbles may arise as a solution to the house price determination equation employing two recently developed econometric techniques specifically designed to test for rational bubbles we then provide empirical evidence for the existence of bubbles in u k house prices over the sample period 1983 2002 a widely held view among academics and practitioners is that the time series behavior of house prices of several major industrialized countries may have been characterized by explosive bubbles which are not present in the underlying fundamentals and which therefore may drive an explosive wedge between house prices and their fundamental determinants in particular with regard to the united kingdom a large empirical literature has studied the determinants of the two booms experienced by house prices in the early 1970s and late 1980s providing some tentative evidence in support of the view that speculation on expected future house prices might have been an important force driving actual house prices see inter alia hendry 1984 muellbauer and murphy 1997 renaud 1997 teraisvirta 1998 more recently concerns of an ongoing house price bubble in the united kingdom have been repeatedly raised by the press and policymakers these concerns are well summarized in the following quote it will be different this time those are the most dangerous words in investment and in economic policy the u k is yet again in an unbalanced expansion behind it lies explosive household

on real interest rate dynamics and regime switching abstract we find evidence of regime switching dynamics in the usa and the uk real interest rates over the period 1881 2003 for the uk there is a regime in which the real interest rate displays a relatively stronger mean reversion and a regime in which it displays a relatively weaker mean reversion the former regime is characterized by a relatively larger error in the estimation of the reversion parameter and higher volatility for the usa the two regimes differ in volatility the probability of transition from one regime to another is found to be significantly related to the inflation rate regime and to the political regime the results highlight the importance of regime switching in the dynamics of the real interest rate as well as the role of inflation and political regimes in explaining this switching

misspecification versus bubbles in hyperinflation data monte carlo and interwar european evidence abstract this paper analyzes some new tests of the cagan hyperinflation money demand model which have several advantages relative to those in the literature they do not confound specification error with rational bubbles can be implemented with a linear procedure and are frequently able to detect periodically collapsing bubbles which have challenged existing tests after a monte carlo analysis the tests are applied to data from hyperinflations in austria germany hungary and poland evidence of misspecification is found for austria germany and hungary while the model without a rational bubble component appears to fit the data for poland

markov switching models and the unit root hypothesis in real us gdp abstract i find that real us gdp is better characterized as a trend stationary markov switching process than as having a regime dependent unit root i examine the effects of both assumptions on the analysis of business cycle features and their implications for the persistence of the dynamic response of output to a random disturbance

price controls and banking in emissions trading an experimental evaluation we present results from laboratory emissions markets designed to investigate the effects of price controls and permit banking on limiting permit price risk while both instruments reduce between period price volatility and within period price dispersion combining price controls and permit banking yields important benefits banking alone produces high permit prices in earlier periods that fall over time but the combined policy produces lower initial prices and lower volatility however banking price controls and the combination all produce higher between period emissions volatility hence for emissions markets that seek to control flow pollutants with strictly convex damages efforts to limit permit price risk can result in higher expected damage

rational bubbles during poland s hyperinflation implications and empirical evidence abstract it has been argued that the polish hyperinflation at the end of the eighties was too excessive to be attributed to market fundamentals only in this paper a range of indirect non structural and structural tests for rational exploding deterministic and stochastic bubbles are carried out we adopt a new strategy based on the work of hall and sola 1993a which allows for the possibility of switching regimes in the time series properties of the data to allow for both indirect tests and structural tests for the presence of stochastic bubbles

emissions variability in tradable permit markets with imperfect enforcement and banking abstract in this laboratory experiment on emissions trading subjects face exogenous random emissions shocks after making production and emission control plans in some sessions subjects can bank their unused permits for future use after a reconciliation trading period following the shock realization subjects report their emissions to the regulatory authority and are placed in different inspection groups depending on their compliance history we identify important interactions between banking compliance and enforcement banking smoothes out the price variability arising from imperfect emissions control price stability comes at a cost however since noncompliance and emissions are significantly greater when banking is allowed

does purchasing power parity hold sometimes regime switching in real exchange rates standard unit root tests are not very powerful in drawing conclusions regarding the validity of purchasing power parity ppp rather than asking whether ppp holds throughout the whole sample period we examine in this study if ppp holds sometimes by employing hamilton type 1989 markov regime switching models when at least one of multiple regimes is stationary ppp holds locally within the regime there are indeed various reasons that we should expect that the persistence of real exchange rates changes over time employing five real exchange rates spanning more than 100 years we find herein strong evidence that the strength of ppp varies during the sample periods and that there exist stationary regimes in which ppp holds throughout the article we also make comparisons to previous markov regime switching estimation results by kanas 2006 on the same data series the new markov switching model selection criterion of smith et al 2006 which is devised especially for discriminating markov regime s

designing organizations for trading pollution rights regulators and academicians have recently become interested in using a marketable permits program as a new way to control aggregate pollution emissions our research focuses on choosing a permit trading mechanism that is both economically efficient and politically viable we consider an organized trading process and a revenue neutral auction both of which involve an initial allocation of permits based on past history each is tested in a competitive and in a non competitive environment to determine which mechanism performs best the results of our research suggest that overall the organized trading process outperforms the revenue neutral auction

multiple bubbles in the european union emission trading scheme abstract the european union emission trading scheme eu ets is the first large scale co 2 emission trading system in the world carbon allowances are financial assets potentially vulnerable to the behavior of traders and investors in fact the carbon price has been quite volatile since the inception of the market and it has recently hit very low values however to date no work exists to evaluate whether volatility and price spikes are due to episodes of speculation and price bubbles our paper fills this gap we use the recent approaches developed by phillips and yu 2010 phillips et al 2011 and phillips et al 2015a 2015b who propose a recursive right sided unit root approaches to detect and date stamp mildly explosive behaviors and carbon market exuberance we complement this methodology by using the wild bootstrap procedure by goncalves and kilian 2004 to control for the heteroschedasticity of carbon price data analyzing the eu ets front month contract price from 2005 to 2014 we find different episodes of price bubbles these episodes are not explained by similar behavior of the fundamentals but seem related to energy and environmental policy announcements our results can provide insightful policy implications in the context of the actual carbon market reform as well as the implementation of stricter financial regulations rules to co 2 trading

the role of the public administrations in the promotion of the environmental activity in spanish industrial companies abstract an aim of this study is to analyse the managers opinions in relation to the environmental policy instruments that the public administrations promote in order to force firms to care for the natural environment in the same way we study the relation between the perceived importance of these instruments and the level of collaboration between the public administrations and firms in this area taking into consideration the fact that in spain firms are still in a relatively incipient stage from an environmental standpoint we analyse how these instruments are assessed by managers of spanish industrial firms besides we study whether several opinions are one of the causes of less collaboration in environmental public programs we show that the tightening of the legislation in the environmental area induces a deeper consciousness among companies about the environmental problem because of this and despite having other instruments the public administrations should legislate and enforce the legislation as a first measure of environmental control afterwards we were able to confirm that there does not exist any relation between the importance of the administrative instruments and the perception of the efficacy of these on the part of the managers as they are being implemented nowadays we also confirm that there are no significant differences in the judgement of the importance efficacy relation among those companies that maintain different type of relations with the public administrations in the environmental field this result allows us to arrive at the conclusion that in spite of the differences between the importance and the efficacy that the companies attach to the administrative instruments these differences do not influence the type of relations that the companies maintain with the public administrations in the environmental field therefore it seems that these relations depend on other factors perhaps the level of information of the companies about the public programs or about the necessary resources to have access to them

markets for water rights under environmental constraints abstract the cumulative impact of pollutants on water quality at a given location along a river is a function of prior loadings as well as pollution and surface flows at that particular site the question of whether it is possible to maintain water quality under alternative mechanisms for allocating surface water and pollution rights is addressed we model the optimal allocation of surface water and pollution rights along a river with water quality constraints due to cumulative effects the shadow values of water and pollution rights are contingent on location it is shown that a nash equilibrium in a market for tradable surface water rights in conjunction with a market for pollution damages implements the optimal solution the market supports location specific prices for both consumptive water rights and pollution damages

economic prescriptions for environmental problems how the patient followed the doctor s orders o ne of the dangers with ivory tower theorizing is that it is easy to lose sight of the actual set of problems which need to be solved and the range of potential solutions as one who frequently engages in this exercise i can attest to this fact in my view this loss of sight has become increasingly evident in the theoretical structure underlying environmental economics which often emphasizes elegance at the expense of realism in this paper i will argue that both normative and positive theorizing could greatly benefit from a careful examination of the results of recent innovative approaches to environmental management the particular set of policies examined here involves two tools which have received widespread support from the economics community marketable permits and emission charges pigou 1932 dales 1968 kneese and schultze 1975 both tools represent ways to induce businesses to search for lower cost methods of achieving environmental standards they stand in stark contrast to the predominant command and control approach in which a regulator specifies the technology a firm must use to comply with regulations under highly restrictive conditions it can be shown that both of the economic approaches share the desirable feature that any gains in environmental quality will be obtained at the lowest possible cost baumol and oates 1975 until the 1960s these tools only existed on blackboards and in academic journals as products of the fertile imaginations of academics however some countries have recently begun to explore using these tools as part of a broader strategy for managing environmental problems

interactions between real economic and financial sides of the us economy in a regime switching environment this objective of this study is to examine the linkages between real economic and financial variables in the united states in a regime switching environment that accounts explicitly for high volatility in the stock market and high stress in financial markets since the linearity test shows that the linear model should be rejected we employ the markov switching vecm to examine the same objective using the bayesian markov chain monte carlo method the regime dependent impulse response function rdirf highlights the increasing importance of the financial sector of the economy during stress periods the responses and their fluctuations are significantly greater in the high volatility regime than in the low volatility regime

stochastic pollution permits and merger incentives pollution permit regulations introduce nonlinearities into the objective function of a polluting firm we develop a microeconomic model to show the effects these nonlinearities might have upon firm decisions when emissions are stochastic under perfect competition the fraction of planned pollution covered by permits is shown to be separable from planned production we also demonstrate that permit management incentives may motivate a merger of otherwise independent firms incentives to petition for bubble coverage are also considered the model is studied under risk neutrality and risk aversion imperfectly competitive situations in the output and permit markets are also analyzed

efficient competitive equilibria with adverse selection do walrasian markets function orderly in the presence of adverse selection in particular is their outcome efficient when exclusive contracts are enforceable this paper addresses these questions in the context of a rothschild stiglitz insurance economy we identify an externality associated with the presence of adverse selection as a special form of consumption externality consequently we show that competitive equilibria always exist but are not typically incentive efficient however as markets for pollution rights can internalize environmental externalities markets for consumption rights can be designed to internalize the consumption externality due to adverse selection with such markets competitive equilibria exist and incentive constrained versions of the first and second welfare theorems hold

market power in emissions trading markets ruled by a multiple unit double auction further experimental evidence we discuss selected methodological problems of previous double auction da experiments and test the hypothesis that a multiple unit double auction muda is able to prevent market power in an emissions trading market additionally we analyze how the information subjects receive about the market structure and different levels of subjects experience influence the behavior based on a larger number of independent observations than analyzed in previous studies the experiment generates two main results first emissions trading markets ruled by a muda realize a high degree of efficiency even under market power conditions however a muda is in general not able to restrict market power we observe persistent price discrimination in two market power environments i e the distribution of profits is strongly shifted in favor of the strong market side without greatly harming efficiency this result is independent of the information to subjects about the market structure second when subjects are experienced the efficiency is higher and the ability of the strong market side to exercise market power declines strongly however the variability of behavior is large and the strong market side is still able to realize supracompetitive profits in some groups

emissions trading with shares and coupons when control over discharges is uncertain abstract two important decisions in designing markets for tradable emissions permits are whether to allow banking of permits coupons and whether to allow trading in entitlements to future permits shares banking is predicted to reduce price instability when firms trade in a reconciliation market after the quantity of emissions has been determined tradable shares are a common feature in proposals for emissions trading in canada we conduct a laboratory experiment to investigate how bankable coupons and tradable shares affect efficiency and prices under uncertainty cognitive demands on the subjects are reduced by computerized advice on the optimal allocation of coupons across periods and the implied marginal values of coupons and shares banking share trading and uncertainty conditions are introduced in a complete factorial design with three observations per cell high efficiencies are observed across all treatments uncertainty in the control of emissions leads to substantial price instability when banking is not allowed banking virtually eliminates the instability but reduces the efficiency of the market institution share trading reduces trading volumes increases price stability and improves efficiency

allowance price drivers in the first phase of the eu ets abstract in the first phase of the eu emissions trading scheme eu ets the price per ton of co 2 initially rose to over 30 the price then collapsed to essentially zero by mid 2007 by deriving a structural model of the allowance price under the assumption of efficient markets i examine the extent to which this variation in price can be explained by marginal abatement costs i then gradually relax the model by allowing for delayed adjustment of price to fundamentals as well as by introducing lagged lhs variables the pattern of results suggests that while prices were not initially driven by marginal abatement costs this inefficiency was largely corrected after the accounting of 2005 emissions in april 2006

improving efficiency in bilateral emission trading when environmental damages from emissions are spatially nonuniform permit trading has been modeled most often as a pollution offset program in which emission permits are traded between agents subject to constraints on ambient air quality to date the institution envisioned to implement such a program involves trading on a bilateral and sequential basis however simulation studies indicate that the sequence of trades may alter the outcome and undermine the cost savings from a pollution offset program this paper identifies a design for the trading institution that tends to overcome this phenomenon and improve the efficiency of equilibria obtained in a simulation model we model a bilateral trading process for the reduction of sulfur dioxide emissions with a stochastic description of the sequence of trades within groups of nations in europe when trading takes place between disaggregated stylistic representations of economic enterprises rather than between national governments a significantly greater portion of potential savings is achieved in fact under most sets of assumptions approximate first order stochastic dominance is achieved wherein the more decentralized the trading agents the greater the expected savings from a trading program

cooperation spillovers and price competition in experimental markets i introduction both competition and cooperation are important for the successful functioning of many economic systems for example firms compete in markets but they also cooperate with one another through arrangements such as research joint ventures lobbying cooperative marketing agreements and strategic alliances in this paper we use experiments to examine how competitive interactions affect agents propensity to cooperate we are interested in studying spillovers that may involve cooperation in one domain such as a research joint venture and competition in another such as in a market 1 cooperation could weaken competition perhaps promoting collusion or market competition could reduce incentives for non market cooperation these behavioral spillovers could go in either direction they are distinct from another type of spillover through knowledge externalities that occur in research and development r d when the innovator cannot fully appropriate the gains to innovation leading potentially to a socially inefficient level of research debondt 1996 2 as discussed below behavioral spillovers have been shown in experiments to increase cooperation in otherwise competitive environments for example through establishing cooperative precedents a large body of theoretical research has focused on firms cooperating in research joint ventures and how this impacts competition in output markets for example cooper and ross 2009 examine the mechanism by which agreements to cooperate in one market can have negative effects on competition in other markets even in situations when these markets are not linked via costs or demand cabral 2000 shows that product market prices are affected by r d agreements between firms caloghirou ioannides and vonortas 2003 lambertini poddar and sasaki 2003 and poyago theotoky 2007 also discuss the impact of forming research joint ventures on product markets and cartel formation 3 empirical work using field data has provided creative indirect evidence on the collusive potential of research joint ventures by exploiting natural policy experiments although the extent of this evidence is limited goeree and helland 2010 for example show that research joint ventures facilitate collusion because they became less popular following an enforcement policy change leniency that made collusion less attractive policy experiments such as these are often required since systematic collusion often goes undetected by authorities duso roller and seldeslachts 2010 also examine the link between research joint ventures and collusion using data from the u s national cooperation research act that granted certain research joint ventures milder antitrust scrutiny they find that horizontal research joint ventures lead to more collusion than vertical joint ventures our work provides complementary and more direct evidence since in the laboratory we can observe the level and sustainability of tacit and explicit collusion and can therefore circumvent the measurement and endogeneity issues that are often prevalent in field data the specific research goals of this study are the following first we wish to examine if agents take advantage of available gains from cooperation in the presence of payoff uncertainties that arise from stochastic innovation success second we are interested in learning if a behavioral spillover of cooperation can lead to collusion in markets or whether competition in markets reduces non market cooperation these notions of cooperation concern contributions to joint r d projects or collusion in price setting and are defined independently of any communication opportunities therefore our third goal is to determine how this interaction between cooperation and competition is affected by the introduction of non market communication opportunities finally we will measure the externalities from r d cooperation to non innovators in the market

labor market effects of employer provided health insurance i introduction increasing health insurance coverage is arguably an important policy goal the congressional budget office 2003 estimates that in 1998 20 30 million americans had no health insurance for the entire year approximately 40 million were uninsured at a specific point in time in the year and nearly 60 million were without coverage some time during the year most individuals who have health insurance in the united states obtain it through their employer in 1999 65 8 of nonelderly americans had employer provided insurance also called group insurance or employer sponsored insurance either through their own employer or through the employer of another household member see gruber 2001 employer provided insurance plans generally have lower premiums and offer more benefits than individual insurance plans health insurance providers can offer cheaper and better plans to company employees for at least two reasons first the average administrative cost of such plans is lower than individual plans second employment based plans are typically subject to less adverse selection than individual plans particularly so for large employers furthermore the tax subsidy afforded employment based health insurance renders the effective consumer price substantially lower than the cost see pauly 1986 and gruber 2001 together these various factors give a strong incentive for employers to offer and employees to accept coverage as part of their employment contract as employer provided insurance is by far the most prevalent form of coverage in the private sector policy makers look for further expansion of this base as a way to insure the uninsured while avoiding direct public financing as a way to increase employer based health insurance coverage some states either have or are considering government mandates that require employers to provide insurance to certain types of workers 1 the state of hawaii requires private sector employers to offer health insurance to all workers who work for more than 20 h a week and requires these workers to have insurance the state of california is currently considering a similar mandate there is a considerable interest from policy makers on the effects of such mandates on labor market outcomes in this study we report on an experiment that was designed to provide some insights about possible effects of alternative health insurance regulations on the competitive labor market with a particular focus on mandates since we only considered a competitive market setting with complete contracts and no wage rigidities our results may not be directly applicable to all labor market situations 2 however the study provides useful insights about the interaction of health insurance benefit provision wages and employment structure for labor markets where the competitive wage setting and the complete contracts assumptions are reasonable with these limitations in mind our results can be also generalized to other types of employer provided fringe benefits such as paid vacations or pension plans as any government intervention health insurance regulation may affect the labor market theory predicts that in perfectly competitive labor markets health insurance creates no distortionary effects on the labor market equilibrium as long as the coverage is not mandated and there are no wage rigidities 3 all workers who value insurance above its cost of provision are offered insurance and accept it the wages are adjusted downward see rosen 1986 and gruber 2000 summers 1989 used a simple supply and demand analysis to show that the effect of increases in premiums on equilibrium labor hours and wage depends both on the elasticity of labor demand and labor supply and on how fully workers value changes in the cost of health insurance if the demand or the supply of labor is completely inelastic or if workers fully value the insurance then an increase in the premium would result in an equal decrease shift in wages

pricing the permission of pollution optimal control based simulation of payments for the initial emission allowance in china china has modified its pollution control policy system with such price tools as the pollution charge pc policy and the payment for initial emission allowance piea policy the aim of pc policy is to compensate for the environment damage caused by pollutants while piea is in charge of the initial emission allowance iea within the emission trading system ets however since the implementation of piea it has been criticized as redundant because of the similar pricing scheme with the pc in addition the existing piea pricing approaches have ignored interactions with other policies such as pc and total emission control tec policies in this research we established an optimal control based model with chemical oxygen demand cod and ammoniacal nitrogen nh3 n two independent pollutants variables to simulate the water pollutants piea price simulation results indicated that emission quantity and optimal social benefit in the pc piea combination scenario was equal to the situation in the piea scenario under this design pc compensated for the emission damage and piea paid for the scarcity rent while piea does not duplicate the pc policy in addition the piea policy has a complex effect on pollutant emission because piea policy increases the enterprises discharging cost most regions cod emissions are less than the baseline excepting beijing shanghai jiangsu zhejiang fujian shandong and guangdong in which emission quantities are greater than the baseline the nh3 n emission shows an opposite trend the simulation result is that excluding inner mongolia hubei hunan tibet gansu qinghai ningxia and xinjiang the nh3 n emissions in the rest of regions are increased tec policy has a significant effect on pollutant emissions and the piea price the cod emission quantity with tec is lower than that without the tec policy therefore the tec policy will be effective for pollutant emission control the pollutant beyond the restricted target will be charged a payment for iea at a higher price than without the tec policy

promoting energy efficiency financing and escos in developing countries mechanisms and barriers abstract developing countries have tremendous potential to increase energy efficiency but face several barriers before the potential can be realised a lack of access to appropriate financing mechanisms is one of the important barriers energy service companies escos a market oriented mechanism to improve energy efficiency had successful experiences in developed countries such as the usa and canada and developing countries such as south korea escos are in nascent stage in many developing countries and face several barriers that include market finance and institutional barriers poor energy pricing policies high transaction costs etc market development through active involvement of governments as a customer information provider and policy maker is required to promote escos development of specialised energy efficiency financing windows in appropriate financial institutions development of skills for energy efficiency project appraisal and design of specialised financial products are other measures to accelerate the diffusion of energy efficiency

purchasing power parity and markov regime switching we revisit the evidence on ppp in the twentieth century allowing for markov regime switching in the adf regression using lopez et al s 2005 extension of taylor s 2002 original data set our results are 1 for most countries there are periods over which the real exchange rate is stationary and ppp holds and periods over which the real exchange rate is non stationary and ppp does not hold namely regime dependent stationarity thus real exchange rate stationarity is a stochastic event itself 2 the probability that the real exchange rate is stationary is less than 50 for most countries 3 there is evidence of non stationarity during both the bretton woods and the recent float periods for the majority countries the comparative performance of ppp is slightly better during bretton woods than the recent float

auctions with resale opportunities an experimental study we study first price asymmetric private value auctions with resale opportunities presented in seller s and buyer s markets we offer experimental evidence on bidding behavior prices and resource allocation building upon the hafalir and krishna 2008 model we find that bidders will bid higher in an auction if the resale market is a seller s market than a buyer s market there is a price revenue efficiency trade off established theoretically between these two resale regimes in equilibrium however final efficiency is high irrespective of the resale market structure evidence of bid symmetrization and higher final efficiency is found in the buyer advantaged resale case jel d44 c92

emission permit banking pollution abatement and production inventory control of the firm abstract in this paper we present a dynamic model modified with emission permit banking and pollution abatement and investigate the effect of emission permit banking and pollution abatement on the production inventory strategy of the firm after introducing emission permit banking and pollution abatement the cost function consists of the inventory holding and production costs the cost of investment in abatement capital goods and the emission procurement selling cost furthermore the inventory holding costs are linear production costs are non decreasing and convex functions of the production level and the costs of investment in abatement capital goods are increasing and convex functions of the investment level we compare the optimal production inventory strategy before emission permit banking and pollution abatement and thereafter the mathematical investigation is based on the arrow karlin model

buyer liability and voluntary inspections in international greenhouse gas emissions trading a laboratory study this paper reports a preliminary laboratory experiment in which traders make investments to increase the reliability of tradable instruments that represent greenhouse gas emissions allowances in one half of the sessions these investments are unobservable while in the other half traders can invite costless and accurate inspections that make reliability investments public we implement a buyer liability rule so that if emissions reductions are unreliable i e sellers default the buyer of the allowances cannot redeem them to cover emissions we find that allowing inspections significantly increases the reliability investment rate and overall efficiency prices of uninspected allowances usually trade at a substantial discount due to the buyer liability rule which provides a strong market incentive for sellers to invest in reliability

trading rules from forecasting the collapse of speculative bubbles for the s p 500 composite index many recent studies documented the presence of speculative bubbles defined as systematic and increasing deviations of actual prices from fundamentals in asset prices however thus far the usefulness of such models has been examined in the literature only from a statistical perspective in this paper we employ two regime switching models of periodically partially collapsing speculative bubbles and examine the risk adjusted profits of trading rules formed using inferences from them use of trading rules derived from an augmented model incorporating market volume leads to higher risk adjusted returns than those obtained employing existing models or a buy and hold strategy

market power in tradable emission markets a laboratory testbed for emission trading in port phillip bay victoria abstract in theory competitive emission permit markets minimize total abatement costs permit markets are often imperfectly competitive however and may be thin and dominated by large firms the dominant firm s could exercise market power and increase other firms costs of pollution control while reducing their own emission control costs this paper reports a testbed laboratory experiment to examine whether a dominant firm can exercise market power in a permit market organized using the double auction trading institution our parameters approximate the abatement costs of sources in a proposed tradable emissions market for the reduction of nitrogen in the port phillip watershed in victoria australia we vary across treatments the initial allocation of permits to sources so that in one treatment the seller of permits is a monopolist and in another treatment the market is duopolistic we also vary the information that subjects have about the number and abatement costs of their competitors we find that prices and seller profits are higher and efficiency is lower on average in the monopoly sessions compared with the duopoly sessions but the differences are not substantial and are not statistically significant due to pronounced variation across sessions moreover prices profits and transaction volumes are usually much closer to the competitive equilibrium ce than the monopoly equilibrium

banking and borrowing in the eu ets a review of economic modelling current provisions and prospects for future design this article deals with the issue of banking and borrowing in the context of the european union emissions trading scheme eu ets by attempting to provide a policy oriented unifying theoretical framework after describing the main features of the eu ets the core part of the article consists of variations of an inter temporal continuous time optimization model additional elements include flexibility measures currently discussed and proposed in other emissions trading systems usa australia which include the use of safety valves minimum price auctioning or offsets from domestic or international projects

tell the truth or not the montero mechanism for emissions control at work abstract we experimentally test the truth telling mechanism proposed by montero 2008 for eliciting firms abatement costs we compare this mechanism with two well known alternative allocation mechanisms free and costly allocation of permits at the pigouvian price controlling for the number of firms and the firms maximal emissions we find that in line with the theoretical predictions firms over report their maximal emissions under free allocation of permits and under report these under costly allocation of permits under montero s mechanism by contrast firms almost always report their maximal emissions truthfully however in terms of efficiency the difference between montero s mechanism and costly allocation disappears with industries including more than one firm

multi country tests for price level bubbles abstract flood and garber 1980 have examined data from the german hyperinflation to test for a price level bubble in this paper we extend this research to other episodes of hyperinflation by testing for a simultaneous bubble across countries we implement the conceptual experiment proposed by flood and garber to derive asymptotic distributions for the test statistics

heterogeneity irreversible production choices and efficiency in emission permit markets abstract this paper investigates a class of market mechanisms for environmental regulation based on the clean air act tradable discharge permit program laboratory market experiments capture some of the more salient institutional features and focus on issues of firm technological heterogeneity and irreversible investment regarding the operation of the permit market experimental results suggest that higher degrees of abatement cost heterogeneity may lead to reduced trade volume while the implications of increased cost heterogeneity regarding price volatility are mixed finally increased cost heterogeneity appears to result in decreased laboratory efficiency

auctioning vs grandfathering in cap and trade systems with market power and incomplete information we compare auctioning and grandfathering as allocation mechanisms of emission permits when there is a secondary market with market power and firms have private information on their own abatement technologies based on real life cases such as the eu ets we consider a multi unit multi bid uniform auction at the auction each firm anticipates its role in the secondary market either as a leader or a follower this role affects each firms valuation of the permits which are not common across firms as well as their bidding strategies and it precludes the auction from generating a cost effective allocation of permits as it occurs in simpler auction models auctioning tends to be more cost effective than grandfathering when the firms abatement cost functions are sufficiently different from one another especially if the follower has lower abatement costs than the leader and the dispersion of the marginal costs is large enough

regime switching properties of the optimal seigniorage hypothesis the case of taiwan the optimal seigniorage hypothesis argues that the government will attempt to minimize the sum of social costs arising from the rate of inflation and taxation which results in the testable prediction that inflation and rate of tax revenue will be positively correlated this article empirically examines the regime switching properties of this theory using quarterly data from taiwan over 1961 2000 sampling periods it finds that the optimal seigniorage hypothesis is weakly supported and its explanatory power for the long run inflation behaviour is weak

generation expansion planning optimisation with renewable energy integration a review generation expansion planning consists of finding the optimal long term plan for the construction of new generation capacity subject to various economic and technical constraints it usually involves solving a large scale non linear discrete and dynamic optimisation problem in a highly constrained and uncertain environment traditional approaches to capacity planning have focused on achieving a least cost plan during the last two decades however new paradigms for expansion planning have emerged that are driven by environmental and political factors this has resulted in the formulation of multi criteria approaches that enable power system planners to simultaneously consider multiple and conflicting objectives in the decision making process more recently the increasing integration of intermittent renewable energy sources in the grid to sustain power system decarbonisation and energy security has introduced new challenges such a transition spawns new dynamics pertaining to the variability and uncertainty of these generation resources in determining the best mix in addition to ensuring adequacy of generation capacity it is essential to consider the operational characteristics of the generation sources in the planning process in this paper we first review the evolution of generation expansion planning techniques in the face of more stringent environmental policies and growing uncertainty more importantly we highlight the emerging challenges presented by the intermittent nature of some renewable energy sources in particular we discuss the power supply adequacy and operational flexibility issues introduced by variable renewable sources as well as the attempts made to address them finally we identify important future research directions

crypto currency bubbles an application of the phillips shi yu 2013 methodology on mt gox bitcoin prices the creation of bitcoin heralded the arrival of digital or crypto currency and has been regarded as a phenomenon since its introduction it has experienced a meteoric rise in price and rapid growth accompanied by huge volatility swings and also attracted plenty of controversies which even involved law enforcement agencies hence claims abound that bitcoin has been characterized by bubbles ready to burst any time e g the recent collapse of bitcoin s biggest exchange mt gox this has earned plenty of coverage in the media but surprisingly not in the academic literature we therefore fill this knowledge gap we conduct an econometric investigation of the existence of bubbles in the bitcoin market based on a recently developed technique that is robust in detecting bubbles that of phillips et al 2013a over the period 2010 2014 we detected a number of short lived bubbles most importantly we found three huge bubbles in the latter part of the period 2011 2013 lasting from 66 to 106 days with the

red signals current account deficits and sustainability abstract this paper proposes a method to asses the potential problems of sustainability of a country s sovereign debt we claim that the relevant variables used for this analysis are typically subject to changes that are associated with changes in macroeconomics policies we propose a procedure for identifying periods under which the current account accumulates at a non stationary rate our approach is based on imposing identifying restrictions on markov switching type models empirical applications of the procedure to argentina brazil japan uk and usa are examined and discussed

the rate at which a simple market converges to efficiency as the number of traders increases an asymptotic result for optimal trading mechanisms private information in an independent private values market provides incentives to traders to manipulate equilibrium prices strategically this strategic behavior precludes ex post efficient market performance increasing the number of traders improves the efficiency of some trading mechanisms by enabling them to better utilize the private information traders bids and offers reveal this paper shows that the expected inefficiency of optimally designed mechanisms relative to ex post efficient allocations decreases almost quadratically as the number of traders increases

pitfalls in testing for explosive bubbles in asset prices a number of studies e g robert j shiller 1981 olivier j blanchard and mark watson 1982 kenneth d west 1988 have argued that dividend and stock price data are not consistent with the market fundamentals hypothesis in which prices are given by the present discounted values of expected dividends these results have often been construed as evidence for the existence of bubbles or fads related arguments have been made with respect to gold bonds and foreign exchange a major problem with such arguments e g james hamilton and charles whiteman 1985 is that apparent evidence for bubbles can be reinterpreted in terms of market fundamentals that are unobserved by the researcher behzad t diba and herschel i grossman 1984 1988b and hamilton and whiteman 1985 have recommended the alternative strategy of testing for rational bubbles by investigating the stationarity properties of asset prices and observable fundamentals 1 in essence the argument for equities is that if stock prices are not more explosive than dividends then it can be concluded that rational bubbles are not present since they would generate an explosive component to stock prices 2 using unit root tests autocorrelation patterns and cointegration tests to implement this procedure diba and grossman 1988b p 529 state that the analysis supports the conclusion that stock prices do not contain explosive rational bubbles this paper shows that the above battery of tests is in fact unable to detect an important class of rational bubbles the point is demonstrated by constructing rational bubbles that appear to be stationary when unitroot tests are applied even though they are explosive in the relevant sense simulations show that when such bubbles are present stock prices will not appear to be more explosive than dividends on the basis of these tests even though the bubbles are substantial in magnitude and volatility the presence of rational bubbles in actual stock prices thus remains an open question

a review of industrial energy and climate policies in japan and sweden with emphasis towards smes abstract the threat of increased global warming resulting from the use of fossil fuels stresses decision makers to formulate and adopt policies towards different sectors of the economy in light of the great earthquake in japan 2011 energy efficiency also plays an important role in meeting the challenge of power supply shortage energy policies towards industry are of particular importance as a major part of the energy in the economy is used in industrial production the number of papers investigating and presenting experience from energy end use policies are scarce furthermore for those present they often only include a very brief analysis from a public point of view evaluations of energy programs are of major importance to measure the performance of the programs from an energy policy designer point of view it is of major importance to not only see the cost effectiveness of the policy but also to understand the fundamental mechanisms for the success or failure of an industrial energy program in order to learn how to improve future programs the aim of this paper is to present a review of energy end use policy instrument in japan and sweden towards the industrial sector from 1990 to 2014 with special emphasis on industrial smes from the results presented some general conclusions can be made 1 results show that the cost effectiveness differs substantially between the evaluated programs and 2 that from a governmental point of view subsidies towards energy audit programs seem like the most cost effective policy in addition to this 3 the results from the review also stress the importance of a clear strategy for every energy program on how the program is going to be evaluated ex ante or ex post and how the performance of the program is to be measured this structure should be included from the start of the program

externalities and corrective policies in experimental markets this paper reports on the behaviour of simple laboratory markets which have an externality experiences with these markets provide some help in answering two broad questions 1 do markets with externalities behave in accordance with the law of supply and demand 2 how do the pollution tax pollution standard and pollution licenses compare as methods for correcting the externality

efficiency in auctions with failed resale abstract the possibility of resale affects efficiency in multi object uniform price auctions with asymmetric bidders we theoretically show that when the exogenous probability of a resale market is sufficiently low final efficiency is lower than in an auction without resale our experimental design consists of four treatments that vary the probability that bidders participate in a resale market resale always increases efficiency compared to the auction allocation but it also induces demand reduction by high value bidders which reduces auction efficiency consistent with theory and in contrast to what is usually argued the possibility of resale may reduce final efficiency and changes in the probability of resale have a non monotonic effect on efficiency we also analyze bargaining chat data to provide insights into the functioning of resale markets