environmental regulation and u s economic growth in this article we quantify the costs of pollution controls by reporting the results of simulations of the growth of the u s economy with and without regulation for this purpose we have constructed a detailed model of the economy that includes the determinants of long term growth we have also analyzed the interaction between industries in order to capture the full repercussions of environmental regulations however we have not attempted to assess the benefits resulting from a cleaner environment we find that pollution abatement has emerged as a major claimant on the resources of the u s economy the cost of emission controls is more than 10 of the total cost of government purchases of goods and services

bankable permits for the control of environmental pollution abstract intertemporal trading of emission permits banking is often identified as one of three promising market mechanisms for controlling pollution along with averaging and trading surprisingly the efficiency properties of permit banking systems have not been investigated using a simple optimal control model this paper investigates firms incentives for banking or borrowing emission permits and compares the emission and output streams firms would choose with the socially optimal solution we find that in many cases firms will suboptimally choose excessive damage and output levels in early periods and correspondingly too few in later periods if given the opportunity to freely move emissions between time periods we propose a simple alternative trading scheme we term modified banking that counters this problem and should be no more difficult for an environmental authority to implement than a straigth banking system

intertemporal emission permits trading under uncertainty and irreversibility this paper analyzes the effect of emission permit banking on clean technology investment and abatement under conditions where the stringency of the future cap is uncertain we examine the problem of heterogeneous firms minimizing the cost of intertemporal emission control in the presence of stochastic future pollution standards and emission permits that are tradable across firms and through time a firm can invest in clean capital an improved pollution abatement technology to reduce its abatement cost we consider two possibilities that investment is reversible or irreversible uncertainty is captured within a two period model only the current period cap is known we show that if banking is positive and marginal abatement costs are sufficiently convex there will be more abatement and investment in clean technology under uncertainty than there would be under certainty and no banking these results are at odds with the common belief that uncertainty on future environmental policy is a barrier to investment in clean capital moreover under uncertainty and irreversibility we find that there are cases where banking enables firms to invest more in clean capital

comparing policies to confront permit over allocation abstract instability in cap and trade markets particularly with respect to permit price collapses has been an area of concern for regulators to that end several policies including hybrid price quantity mechanisms and the newly introduced market stability reserve msr systems have been introduced and even implemented in some cases i develop a stochastic dynamic model of a cap and trade system parameterized to values relevant to the european union s emission trading system eu ets to analyze the performance of these policies aimed at adding stability to the system or at least at reducing perceived over allocations of permits results suggest that adaptive allocation mechanisms such as a price collar or msr can reduce permit over allocations and permit price volatility in a more cost effective manner than simply reducing scheduled permit allocations however it is also found that the performance of these adaptive allocation policies and in particular the msr are greatly affected by assumed discount rates and policy parameters

a cost adjustment heuristic for dynamic lot sizing with uncertain demand timing we define a new heuristic based on the adjustment of set up costs for the dynamic lot sizing problem when demand timing is uncertain using a range of simulated problems we compare the performance of this cost adjustment heuristic with that of a safety lead time heuristic zangwill s deterministic algorithm which ignores uncertainty and the optimal solution results show that the safety lead time heuristic works well for problems with high shortage costs and high probability of early demands but poorly in other circumstances the cost adjustment heuristic is quite robust generally exceeds the performance of the safety lead time approach and is relatively insensitive to variations in uncertainty

continuous review inventory models where random lead time depends on lot size and reserved capacity the processing time of large orders is in many industries longer than that of small orders this renders supply lead times in such settings to be increasing in the order size yet that pattern is not re ected in existing inventory control models especially those allowing for random lead times this work aims at rectifying the situation our setting is an order quantity reorder point model with backordering where the shortage penalty is incurred per unit per unit time the processing time of each unit is random the processing time of a lot is correlated with its size for the case where lead time is proportional to the lot size we obtain a closed form solution that is unlike the classical q r model where lead time is independent of lot size no iterations are required here we also analyze a case where the processing time exhibits economies of scale in the lot size finally we consider a situation where a customer can secure shorter processing times by reserving capacity at the supplier s manufacturing facility 2000 elsevier science b v all rights reserved

social cost of environmental quality regulations a general equilibrium analysis the use of cost benefit analysis by federal regulatory agencies has expanded greatly in scope and sophistication unfortunately agencies continue to employ private cost rather than social cost to evaluate environmental quality regulations furthermore general equilibrium impacts and intertemporal effects of regulations are typically not included in the evaluation in this paper we estimate the social cost of environmental quality regulations mandated by the clean air and clean water acts we construct an econometric general equilibrium model of the united states to demonstrate that social cost estimates diverge sharply from private cost estimates we also demonstrate that general equilibrium impacts are significant and pervasive and that intertemporal effects of the regulations heretofore ignored are significant

a periodic review production planning model with uncertain capacity and uncertain demand optimality of extended myopic policies increasing product complexity manufacturing environment complexity and an increased emphasis on product quality are all factors leading to uncertainties in production processes these uncertainties are in the form of unplanned machine maintenance varying production yields and rework among others in planning for production an adequate model must incorporate these uncertainties into the representation of the production process this paper treats the aggregate planning problem for a single product with random demand and random capacity in the single period problem random capacity does not affect the optimal policy but results in a unimodal nonconvex cost function in the multiple period and infinite horizon settings order up to policies that are dependent on the distribution of capacity are shown to be optimal in spite of a nonconvex cost in the infinite horizon setting an intuitive description of the situation leads to the notion of a class of extended myopic policies requiring the consideration o

firm incentives to promote technological change in pollution control reply abstract the process of technological change in pollution control is broken into three basic steps innovation diffusion and optimal agency response firm incentives to promote these steps are then examined under five regulatory regimes direct controls emission subsidies emission taxes free marketable permits and auctioned marketable permits on a relative basis emission taxes and auctioned permits provide the highest firm incentives to promote technological change at times free permits generate lower incentives direct controls which are common regulatory tools usually provide the lowest relative firm incentives to promote technological change

the structure of periodic review policies in the presence of random yield this work provides a comprehensive analysis of a general periodic review production inventory model with random variable yield existence of an order point whose value does not depend on yield being random is proved in the single period case without specifying the yield model and using a very general cost structure when yield is a random multiple of lot size the nonorder up to optimal policy is characterized for a finite horizon model the finite horizon value functions are shown to converge to the solution of an infinite horizon functional equation and the infinite horizon order point is shown to be no smaller than when yield is certain

an interim evaluation of sulfur dioxide emissions trading ide iv of the 1990 clean air act amendments established the first large scale long term environmental program to rely on tradable emissions permitscalled allowances in this program to control pollution this program was designed to cut acid rain by reducing sulfur dioxide so2 emissions from electric generating plants to about half their 1980 level beginning in 1995 it is of interest both as a response to an important environmental issue and as a landmark experiment in environmental policy this experiment comes at a particularly important time since emission trading is under serious consideration with strong u s backing for use to deal with global climate change by curbing emissions of carbon dioxide co2 the economic stakes in climate change surpass those in acid rain by several orders of magnitude intergovernmental panel on climate change 1996 this article summarizes the results to date of our ongoing empirical analysis of compliance costs and allowance market performance under the u s acid rain program

the marginal cost of funds in the presence of environmental externalities the marginal cost of funds mcf is useful for measuring the cost of taxation in cost benefit and tax reform analysis in this paper we present general equilibrium estimates of the mcf in an economy with environmental externalities we find that excluding such effects can yield quite misleading results the inclusion of externalities opens up a significantly larger potential for tax reform and the ranking of taxes is strikingly changed the estimate of the average base case mcf is reduced we also indicate double dividends in the norwegian economy

an emission saved is an emission earned an empirical study of emission banking for light duty vehicle manufacturers abstract this paper presents results of an empirical study of emission banking for light duty vehicle manufacturers an intertemporal model of manufacturers choices is combined with econometrically estimated abatement cost functions to simulate the cost savings and emission effects of an averaging trading and banking marketable permit system relative to command and control regulations while the cost savings of such a system are estimated to be modest the intertemporal emission effects may be sizable the sensitivity of the results to discount rates abatement cost functions and model specifications is also explored

sectoral and macroeconomic impacts of the large combustion plants in poland a general equilibrium analysis abstract this paper analyses the final incidence of direct costs of implementation of the eu directive on so 2 and no x emission limits for large combustion plants in poland first we simulate a model from a power sector perspective where compliance with the directive appears to be associated only with direct costs second a more realistic market wide perspective is modeled where abatement costs borne by the power sector become the revenues of the sectors supplying abatement technologies and services simulations indicate that if environmental benefits of implementation are unaccounted for the directive would seem to cause a deadweight loss in the economy the overall impact however is likely to be less negative than what the interest groups claim

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

intertemporal links in cap and trade schemes in a two period general equilibrium model i study the effects of intertemporal emission permit trading in a cap and trade scheme when firms investments in abatement have long term effects to meet their caps firms optimally choose levels of trading and investment in each period by equalizing the marginal benefit of abatement to the marginal cost of abatement in each period the fact that investments have long term effects introduces new effects investments in period 1 have both an additional benefit the reduction of emissions in period 2 and an additional cost the decrease in abatement opportunities in period 2 this changes the standard condition of equalization of marginal costs across periods for cost effectiveness without intertemporal trading some investments in period 1 are entirely driven by second period abatement needs in that case allowing intertemporal trading may reduce investment in period 1 as some long term investments are substituted by intertemporal permit trading descriptive evidence from the eu emissions trading system ets illustrates this potential effect

a model of intertemporal emission trading banking and borrowing abstract this paper provides a general treatment of emission trading banking and borrowing in an intertemporal continuous time model using optimal control theory the decentralized behavior of firms is shown to lead to the least cost solution attainable under joint cost minimization explicit solutions for the time paths of emissions and permit prices are derived when firms are allowed to both bank and borrow and when firms are only allowed to bank emission permits the policy implications of emission banking and borrowing are discussed

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

the market for sulfur dioxide emissions the 1990 clean air act amendments initiated the first large scale use of the tradable permit approach to pollution control the theoretical case for this approach rests on the assumption of an efficient market for emission rights the authors empirical analysis shows that the emission rights market created by the 1990 amendments had become reasonably efficient by mid 1994 they also show that the auctions specified in the amendments to jump start trading had become a small part of the overall market finally the authors demonstrate that the strategic bidding behavior discussed in the literature has had no effect on market prices copyright 1998 by american economic association

ordering and production decisions with supply quality and demand uncertainty in this paper we solve a production planning problem that has a direct bearing on the cost to a facility of vendor quality and reliability this solution is also an important first step in solving the multi plant coordination problem we consider a manufacturing facility with one critical raw material and one or more products whose demand needs to be met it is assumed that demand for finished goods and the arrival process for raw material are stochastic we calculate simultaneously the optimal production level and the raw material order quantity which minimize the total expected cost subject to capacity and release level constraints the results obtained by our model the integrated model show that the production level should be no larger than the production level obtained by solving the traditional nonintegrated models and that major savings are obtained by solving the integrated model we are also able to characterize and evaluate the cost of reliable supplies of raw material in addition we solve the above problem in the presence of capacity constraints a procedure which allocates capacity to different products is presented

some ideas regarding reserving supplier capacity and selecting replenishment quantities in a project context abstract in this paper we consider the context of a major project whose execution takes several periods specifically we are interested in the procurement policy for a resource material commodity or engineered item that is used throughout the project two types of uncertainty are considered namely i uncertainty in the requirements period by period and ii uncertainty in the capacity period by period of the supplier providing the resource there is the possibility of paying a premium to reserve dedicated capacity that can vary from period to period hence the first group of decision variables are the capacities to reserve period by period there is typically a long lead time involved so that all the capacities must be reserved prior to the first replenishment decision the second class of decision variables encompasses the procurement quantities period of period these decisions can be made as the project progresses we present some general approaches to dealing with this complex problem as well as some important insights

pollution permit markets with intertemporal trading and asymmetric information abstract we consider the problem of determining the permit discount rate in pollution permit markets in which permits may be traded over time and polluting firms have better information about their abatement costs than does the regulator we show that the preferred permit discount rate may be greater than or less than the money discount rate we also consider whether or not the regulator should allow intertemporal trading to take place allowing intertemporal trading lowers social costs when the slope of the marginal damage function is less than the slope of the aggregate marginal abatement cost function

alternative specifications for environmental control costs in a general equilibrium framework abstract we use a computational general equilibrium model to demonstrate that commonly used simplified specifications for environmental control costs do not yield results that are comparable to those obtained when environmental control costs are correctly specified the results indicate that simplified specifications may perform well when the objective is to qualitatively identify sectors disproportionately affected by environmental regulation but not when the goal is to estimate the magnitude of the effects

incentives for advanced pollution abatement technology at the industry level an evaluation of policy alternatives abstract in this research we evaluate the incentive effects of five environmental policy instruments to promote the development and adoption of advanced pollution abatement technology in a heterogenous industry from most to least incentive the policy instruments can be rank ordered as follows i auctioned permits ii emissions taxes and subsidies iii issued marketable permits iv performance standards including performance standards in this list necessitates the assumption that they are differentiated between heterogeneous firms before the technology adoption in a way which replicates the initial emissions control distribution of the efficient incentive based instruments with the starting point normalized in this fashion the instrument rankings are invariant with respect to the size of firms the size of the industry or the industry s abatement cost structure

inducing innovation in the environmental technology of oligopolistic firms this paper characterizes environmental regulations which induce polluting bertrand competitors to invest efficiently in environmental r d post innovation benefits to raising rivals costs provide firms with incentives to innovate although optimal behavior cannot be elicited with pollution taxes alone an optimum can be achieved by combining emission taxes with environmental performance standards that are higher for firms which reveal superior environmental technologies faced with this policy successful innovators voluntarily reveal their technological discovery to the government despite the apparent regulatory penalty that results implications for automotive fuel regulation are discussed

dynamic incentives by environmental policy instruments a survey abstract in this paper i survey and discuss recent developments on the incentives provided by environmental policy instruments for both adoption and development of advanced abatement technology a main conclusion to be drawn from the literature is that under competitive conditions market based instruments usually perform better than command and control moreover taxes may provide stronger long term incentives than tradable permits if the regulator is myopic if the government can anticipate new technology or is able to react on it optimally regulatory policies by virtue of administered prices taxes and policies by setting quantities issuing tradable permits are almost equivalent the literature also shows that under competitive conditions there is no difference between auctioning permits and grandfathering moreover timing and commitment of environmental policy is not crucial for adoption under competitive conditions commitment has positive incentive effects however if an r d sector has market power in the presence of market imperfections the ranking of the different policy instruments is ambiguous

dynamic lot sizing when demand timing is uncertain we characterize optimal solutions for the dynamic lot sizing problem when demand quantities are known but their timing is uncertain the characterization states that for some possible history of demands following a period of production there is a period with zero inventory before another period with production using this characterization we outline a dynamic program for the solution of these problems some results from sample problems illustrate the variety of optimal solutions that can occur

note a note on the dynamic lot size model with uncertainty in demand and supply processes in this paper we give some extensions of a result of nevison and burstein nevison c h m burstein 1984 the dynamic lot size model with stochastic lead times management sci 30 100 109 who discuss a dynamic lot sizing model with stochastic lead times they consider a situation in which the lead time distribution is unaltered by the amount which is ordered but is otherwise arbitrary and characterize the optimal solution in terms of points at which there is zero inventory here we give a more precise characterization and show that these results can be extended to a situation in which the demands are also stochastic and in which there is uncertainty relating to quantity as well as to the timing of demands and order arrivals the method of proof that we use is different from that used by nevison and burstein

managing permit markets to stabilize prices the political economy of environmental policy favors the use of quantity based instruments over price based instruments e g tradable permits over green taxes at least in the united states with cost uncertainty however there are clear efficiency advantages to prices in cases where the marginal damages of emissions are relatively flat such as with greenhouse gases the question arises therefore of whether one can design flexible quantity policies that mimic the behavior of price policies namely stable permit prices and abatement costs we explore a number of quantity plus policies that replicate the behavior of a price policy through rules that adjust the effective permit cap for unexpectedly low or high costs they do so without necessitating any monetary exchanges between the government and the regulated firms which can be a significant political barrier to the use of price instruments

dynamic version of the economic lot size model this article originally appeared in management science october 1958 volume 5 number 1 pp 89 96 published by the institute of management sciences a forward algorithm for a solution to the following dynamic version of the economic lot size model is given allowing the possibility of demands for a single item inventory holding charges and setup costs to vary over n periods we desire a minimum total cost inventory management scheme which satisfies known demand in every period disjoint planning horizons are shown to be possible which eliminate the necessity of having data for the full n periods

the marginal efficiency effects of taxes and subsidies in the presence of externalities a computational general equilibrium approach abstract using 1983 data we develop a 19 sector computational general equilibrium model incorporating producer producer externalities and producer consumer externalities simulation results indicate that when additional government expenditure is financed by pigouvian taxes the marginal cost of public funds is substantially below one labor sales and output taxes also affect the output of the polluting industries and thus have indirect pigouvian effects which tend to reduce the associated marginal costs of public funds pigouvian taxes are usually more efficient than pigouvian subsidies since the tax revenue can be used to reduce other taxes