effluent regulation and long run optimality a regulator faced with free entry of firms is concerned not only with the implications of public policy for the discharges from a representative firm but also with the total pollution observed at the long run market equilibrium the regulator must take into account not only the effects of regulations upon the net marginal returns of the firm but must also consider the total profit of the firm and incentives for entry and exit this paper shows that effluent charges and tradeable effluent permits lead to long run optimality with entry of small firms the difference between firm payments and environmental damages is interpreted as the rent accruing to the environmental resource this result applies only to the competitive case with small polluters the analysis presented here allows a comparison and clarification of the literature on small and large polluters in a multi input framework with social damages dependent upon total effluents effluent charges are shown here to result in socially optimal entry confirming an assertion of baumol and oates 2 p 179 fn 161 and the important result of schulze and d arge 15 by taking average as well as marginal damages into account the effluent charge results in optimal firm scale levels and the correct input mix at the free entry market equilibrium the firm subject to an effluent tax will operate above or below the private minimum efficient scale depending upon whether average external costs exceed or are less than marginal external costs since public policy to reduce effluents is often directed at reducing the effluentgenerating activity some policy recommendations include a tax on the final output of the polluting firm in some theoretical analyses a relation between the output of the firm and the effluent level is identified and a pigouvian output tax is applied this approach should not be followed by policymakers since an output tax does not provide firms with the correct incentives for either input substitution or market entry it is shown that while a lump sum transfer is needed to provide correct entry incentives when a pigouvian output tax is applied no such transfer is needed if the tax is correctly applied to effluents contrary to 5 even if optimal firm scale and i thank the referees for helpful suggestions the support of the national science foundation under grant ses 82 19121 is gratefully acknowledged any errors are my responsibility 103

environmental regulation technological diversity and the dynamics of technological change inducing technological progress is an important objective of environmental regulation we investigate under which conditions regulation induced technological progress pursues the best technological option we analyze a setting with vertical and horizontal technological progress cost uncertainty time limited patent protection and a case that is typical for some emissi4on intensive industries like electricity generation or the chemical industry under taxes and standards only the current least cost technology is used and developed implying a lock in into a possibly inferior technology tradable permits yield slower progress but can facilitate the simultaneous development of technologies rendering lock ins less likely

regulating stock externalities under uncertainty abstract using a simple analytical model incorporating benefits of a stock costs of adjusting the stock and uncertainty in costs we uncover several important principles governing the choice of price based policies e g taxes relative to quantity based policies e g tradable permits for controlling stock externalities as in weitzman rev econom stud 41 4 1974 477 the relative slopes of the marginal benefits and costs of controlling the externality continue to be critical determinants of the efficiency of prices relative to quantities with flatter marginal benefits and steeper marginal costs favoring prices but some important adjustments for dynamic effects are necessary including correlation of cost shocks across time discounting stock decay and the rate of benefits growth applied to the problem of greenhouse gases and climate change we find that a price based instrument generates several times the expected net benefits of a quantity instrument

the effect of initial lease periods on price discovery in laboratory tradable fishing allowance markets abstract newly established tradable fishing allowance markets are often accompanied by a period of high price volatility these fluctuations complicate capital investment decisions and play a significant role in determining outcomes for the traders involved this paper reports an evaluation of two market design features that may reduce volatility during price discovery a uniform price auction in which all trades within a period take place at the same price and an initial lease period which prohibits permanent allowance transfers at the beginning of the program we find that initial lease periods effectively reduce volatility once permanent trading is introduced

the hiring subsidy cum firing tax in a search model of unemployment abstract we study the macroeconomic and welfare effects of a tax subsidy scheme on labour in a model with search unemployment in a second best world welfare increases if unemployment is inefficiently high or if there are pre existing fiscal distortions

firing costs and business cycle fluctuations this article considers a real business cycle model with establishment level dynamics and uses it to analyze the effects of firing taxes it finds that firing taxes can have significant consequences on business cycle fluctuations that the largest effects are on aggregate employment and that even relatively small firing taxes have substantial effects a significant contribution of the article is computational it describes how to use standard linear quadratic methods to solve for a stochastic equilibrium of an s s economy with tax distortions

sectoral shocks and aggregate fluctuations abstract this paper presents a multisector dynamic general equilibrium model of business cycles with a distinctive feature aggregate fluctuations are driven by independent sectoral shocks the model hypothesizes that trade among sectors provides a strong synchronization mechanism for these shocks due to the limited but locally intense interaction that is characteristic of such input trade flows limited interaction characterized by a sparse intermediate input use matrix reduces substitution possibilities among intermediate inputs which strengthens comovement in sectoral value added and leads to a postponement of the law of large numbers in the variance of aggregate value added the chief virtue of this model is that reliance on implausible aggregate shocks is not necessary to capture the qualitative features of macroeconomic fluctuations building on horvath 1998 review of economic dynamics 1 781 808 which establishes the theoretical foundation for the relevance of limited interaction in the context of a stylized multisector model this paper specifies a more general multisector model calibrated to the us 2 digit standard industrial code economy simulations prove the model is able to match empirical reality as closely as standard one sector business cycle models without relying on aggregate shocks

on the option to invest in pollution control under a regime of tradable emissions allowances optimal decisions of a firm facing the option of retrofitting its plant to reduce pollution and thereby eliminate the need to purchase emissions allowances are analysed the decision is treated as a real option with the price of pollution permits following a known stochastic process the model is formulated as a set of one dimensional partial differential equations at discrete points in time the firm owner makes optimal decisions about the retrofit including whether to mothball temporarily the model is used to analyse a firm s decision to instal a scrubber as a result of the 1990 u s clean air act jel classification q25 d81 g31 sur la possibilite d investir dans le controle de la pollution dans un regime de permis d emission de pollution echangeables commercialement ce memoire examine les decisions optimales d une entreprise face a la possibilite d adapter ses installations pour reduire la pollution et ce faisant d eliminer le besoin de se procurer des permis d emission de pollution sur le marche le decision est traitee comme une option reelle ou le prix des permis resulte d un processus stochastique connu le modele est formule sous forme d un ensemble d equations differentielles partielles a une dimension a des points discontinus dans le temps le proprietaire de l entreprise prend des decisions optimales de mise a niveau des installations y compris la possibilite de les fermer temporairement le modele est utilise pour analyser une decision d installer un epurateur suite a la mise en place de la loi americaine de 1990 clean air act

a simple model of sectoral adjustment despite the significance of limited labour mobility across sectors few attempts have been made to produce dynamic models of sectoral adjustment which are consistent with perfect foresight and yet flexible enough to allow for a variety of dynamic experiments this paper proposes a simple perfect foresight model of two sector economies in which aggregate sectoral movement of labour takes place through the process of demographic change the model is tractable enough that one can easily examine the effects of intertemporally complicated relative price shocks both exogenous and endogenous under a variety of assumptions on technology

prices vs quantities the effects on technology choice abstract it is well known that price and quantity based regulation approaches provide different investment incentives but usually only the effect on the level of investment is studied in this paper we show that under uncertainty they also lead to the adoption of different technologies due to the disparate risks that a regulated firm is exposed to different regulatory instruments induce different technologies and this effect cannot be compensated by varying the design of the instruments furthermore price based instruments lead to the adoption of a socially suboptimal technology so that the inclusion of technology choice provides a bias in favor of a quantity based regulation compared with weitzman s weitzman m l 1974 prices vs quantities review of economic studies 41 477 491 criterion

okun s law fit at 50 this paper asks how well okun s law fits short run unemployment movements in the united states since 1948 and in 20 advanced economies since 1980 we find that okun s law is a strong relationship in most countries and one that is fairly stable over time accounts of breakdowns in the law such as the emergence of jobless recoveries are flawed or exaggerated we also find that the coefficient in the relationship the effect of a 1 change in output on the unemployment rate varies substantially across countries this variation is partly explained by idiosyncratic features of national labor markets but it is not related to differences in employment protection legislation

relative productivity and search unemployment in an open economy abstract using a panel of eighteen oecd countries we find empirically that the long run effects of higher productivity of tradables relative to non tradables vary across time space and stages of the business cycle more specifically our evidence reveals that elasticities of the relative wage and relative price of non tradables with respect to relative productivity of tradables increase over time our estimates also show that the fall in the relative wage is more pronounced whilst the appreciation in the relative price is less in countries where labor markets are more regulated and during periods of recession to rationalize the evidence we differentiate between labor mobility costs caused by job search efforts and hiring costs resulting from search frictions in the labor market in a two sector open economy model while time declining labor mobility costs can account for the time increasing effects of a productivity differential international differences in labor market regulation and variations of hiring costs across the business cycle respectively can rationalize the cross country and state dependent effects we estimate empirically finally labor market frictions have important implications for sectoral unemployment since labor mobility and hiring costs bias labor demand toward the traded sector which results in a greater decline in unemployment in tradables relative to unemployment in non tradables following higher relative productivity

bubbles crashes and endogenous expectations in experimental spot asset markets1 spot asset trading is studied in an environment in which all investors receive the same dividend from a known probability distribution at the end of each of t 15 or 30 trading periods fourteen of twenty two experiments exhibit price bubbles followed by crashes relative to intrinsic dividend value when traders are experienced this reduces but does not eliminate the probability of a bubble the regression of changes in mean price on lagged excess bids number of bids minus the number of offers in the previous period p pt a f b 1 o l supports the hypothesis that a e d the one period expected value of the dividend and that f 0 where excess bids is a surrogate measure of excess demand arising from homegrown capital gains losses expectations thus when bt 1 o goes to zero we have convergence to rational expectations in the sense of fama 1970 that arbitrage becomes unprofitable the observed bubble phenomenon can also be interpreted as a form of temporary myopia tirole 1982 from which agents learn that capital gains expectations are only temporarily sustainable ultimately inducing common expectations or priors tirole 1982 four of twenty six experiments all using experienced subjects yield outcomes that appear to the chart s eye to converge early to rational expectations although even in these cases we get 0 and small price fluctuations of a few cents that invite scalping

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

endogenous technical change and environmental regulation abstract a model of environmental regulation under uncertainty is developed to compare the effect of price versus quantity rules upon technical change quantity rules tend to encourage more efficient levels of technical change

optimal production strategy under demand fluctuations technology versus capacity abstract this paper provides a comparative analysis of five possible production strategies for two kinds of flexibility investment namely flexible technology and flexible capacity under demand fluctuations each strategy is underpinned by a set of operations decisions on technology level capacity amount production quantity and pricing by evaluating each strategy we show how market uncertainty production cost structure operations timing and investment costing environment affect a firm s strategic decisions the results show that there is no sequential effect of the two flexibility investments we also illustrate the different ways in which flexible technology and flexible capacity affect a firm s profit under demand fluctuations the results reveal that compared to no flexibility investment flexible technology investment earns the same or a higher profit for a firm whereas flexible capacity investment can be beneficial or harmful to a firm s profit moreover we prove that higher flexibility does not guarantee more profit depending on the situation the optimal strategy can be any one of the five possible strategies we also provide the optimality conditions for each strategy

fees and the efficiency of tradable permit systems an experimental approach the paper presents the results of an economic experiment in which the effects of fees on allocative efficiency of tradable utilization permits e g pollution permits are explored laboratory subjects university students play the roles of firms whose generic product requires a specific input or permits scarcity is exogenously introduced by a fixed supply of tradable production permits three treatments are compared no fee imposed n a fixed tax per permit t and partial retraction of permits and subsequent redistribution by auction a treatments t and a represent two different ways of imposing fees which are designed to be revenue equivalent our results indicate that after controlling for deviation of permit prices from a prediction based on fundamentals fees have an impact on distribution of permits interestingly a fixed tax enhances efficiency compared to the case of no fees while retraction and reallocation by auction tends to reduce efficiency apparently subjects decision making is affected by the imposition of fees but how and to what extent depends on the method used

a re examination of the meaning and importance of supplier induced demand abstract despite twenty years of work on supplier induced demand sid there has been little discussion or investigation of how inducement affects the health of patients we develop a conceptual framework for sid which includes the clinical effectiveness of the health services utilized as well as the effectiveness of the agency relationship between the physician and the patient the framework is used to identify several conceptually distinct types of utilization each with its own policy implications which have been intermingled in the sid literature after examining each type of utilization we conclude that a continued focus by health economists on the phenomenon of inducement even within an extended conceptual framework may be too limited for the development of policies regarding health service utilization

coupled economic ecological systems with slow and fast dynamics modelling and analysis method the purpose of this article is to contribute to the exploration of non convex dynamics in coupled human nature systems we study welfare issues associated with the management of a human nature complex adaptive system with a threshold and a stochastic driver we exemplify with a specific system where we link changes in the number and diversity of birds to the abundance of a pest insects that causes damages to goods and services valuable to human beings we present a method that simplifies the analysis and helps us discuss different management models that combine direct and indirect controls of the pest this allows us to show that 1 the choice of control method depends in a highly non linear way on biodiversity characteristics and 2 the socially optimal outcome may not be reachable using price instruments hence the price vs quantity debate needs to be revisited using a complex adaptive system lens

identification of supplier induced demand in the health care sector this paper explores the issues and pitfalls encountered when attempting to test empirically the hypothesis that physician hospital or any other input supply level induces increasing demand for health services in the strict sense of demand shift and through that increased demand for the input in question evidence is presented which suggests that an empirical test of the supplier induced demand sid hypothesis of the type traditionally performed may not in fact be feasible with cross sectional aggregate data such as is usually used

pollution permits and environmental innovation abstract this paper starts with a warning about the negative impact of plain pollution allowance markets on environmental pollution innovation stand alone spot markets enable the government to expropriate an innovation by offering a competing technology pollution permits that puts an arbitrary downward pressure on the licensing price advance allowances reduce expropriation but still create suboptimal incentives for innovation they have the further drawback that permits are inefficiently used when the innovation occurs options to pollute at a given striking price fare better than allowances because they create private incentives to phase out pollution in the case of innovation we characterize the social optimum and show that it can be implemented by issuing options to pollute inter alia finally the paper compares ex ante and ex post government procurement surprisingly ex post licensing by the innovator to the government may yield a higher licensing fee than an ex ante contract

are micro and macro labor supply elasticities consistent a review of evidence on the intensive and extensive margins we evaluate whether state of the art macro models featuring indivisible labor are consistent with modern quasi experimental micro evidence by synthesizing evidence on both the intensive and extensive margins we find that micro estimates are consistent with macro estimates of the steady state hicksian elasticities relevant for cross country comparisons on both the extensive and intensive margins however micro estimates of intertemporal substitution frisch elasticities are an order of magnitude smaller than the values needed to explain business cycle fluctuations in aggregate hours by preferences the key puzzle to be resolved is why micro and macro estimates of the frisch extensive margin elasticity are so different

international evidence on tradables and nontradables inflation abstract using 1970 1985 sectoral data for the oecd we find that inflation in nontradable goods exceeds inflation in tradables we identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of the differential inflation in addition disinflation attempts and the exchange rate regime appear to have exerted significant influence on the relative inflation rate

a theory of physician behavior with supplier induced demand the health care crisis of the 1960 s and 1970 s fueled unprecedented efforts by the congress to control costs and at the same time improve access to care as a basis for policy the economics literature offers confusing direction consisting of alternative theories of demand 9 13 theories of market structure 12 5 11 10 and theories of physician behavior and supply response 4 1 at the most fundamental levels of controversy economists have not resolved the issues of demand creation satisficing behavior and targeted income in the modelling of the physician firm the notion that health care markets may be dominated by the health care provider s ability to create demand was introduced formally in newhouse 12 evans parish and sully 4 green 8 and fuchs 6 all offer further refinement of the supplier induced model however as yet no formal presentation of such a theory exists to a large extent an analytical framework that incorporates the physician s decision making processes is absent and remains implicit in the empirical results found in the literature this paper presents a theoretical framework for a supplier induced model of physician behavior whereby we may compare and contrast its implications with those of the standard neoclassical model 1 the acknowledged strength of the supplier induced theory is its ability to explain empirical evidence which stands at odds with more traditional approaches in particular a number of studies have reported a direct association between physician density and physicians fees 12 7 2 that is as the stock of physicians increases the price of medi

the relative price of nontraded goods and sectoral total factor productivity an empirical investigation this paper examines the relationship between the relative price of nontraded goods and sectoral total factor productivities tfps in the context of the balassa samuelson model with perfect capita

environmental policy incentives to adopt advanced abatement technology abstract we investigate incentives through environmental policy instruments to adopt advanced abatement technology first we study the case where the regulator makes long term commitments to policy levels and does not anticipate arrival of new technology we show that taxes provide stronger incentives than permits auctioned and free permits offer identical incentives and standards may give stronger incentives than permits second we investigate scenarios where the regulator anticipates new technologies we show that with taxes and permits the regulator can induce first best outcomes if he moves after firms have invested whereas this does not always hold if he moves first

debt constraints and employment during the great recession us regions that experienced large declines in household debt also experienced large drops in consumption employment and wages we develop a search and matching model i

instrument choice for environmental protection when technological innovation is endogenous this paper compares qualitatively and quantitatively the welfare effects of emissions taxes auctioned emissions permits and free grandfathered permits when technological innovation is endogenous we find that there is no unambiguous case for preferring any of these policy instruments the relative welfare ranking of instruments depends on the costs of innovation the extent to which innovations can be imitated the slope and level of the marginal environmental benefit function and the number of polluting firms we illustrate the types of situations when there can be significant welfare discrepancies between the policies and when there are not

tax versus emissions trading scheme in the long run in this paper we compare the performance of emission taxes and tradable permits under free market entry when firms face idiosyncratic ex ante cost uncertainty we show that under auctioned permits insufficient entry occurs while under a linear emission tax scheme depending on parameters market entry can be either excessive or insufficient our long run analysis thus contrasts with spulber s 1985 equivalence result and also modifies weitzman s result in favor of an ets in that the superiority of a tax over an ets is not guaranteed even when the weitzman condition favors a tax we also show that an ets is superior to a tax scheme when the entry cost is low and the magnitude of uncertainty asymmetric information and the size of the output market are large

a model of technological breakthrough in the renewable energy sector abstract models with induced technological change in the energy sector often predict a gradual expansion of renewable energies and a substantial share of fossil fuels remaining in the energy mix through the end of our century however there are historical examples where new products or technologies expanded rapidly and achieved a high output in a relatively short period of time this paper explores the possibility of a technological breakthrough in the renewable energy sector using a partial equilibrium model of energy generation with endogenous r d our results indicate that due to increasing returns to scale a multiplicity of equilibria can arise in the model two stable states can coexist one characterized by a lower and one by higher supply of renewable energy the transition from the low output to the high output equilibrium is characterized by a discontinuous rise in r d activity and capacity investments in the renewable energy sector the transition can be triggered by a rise in world energy demand by a drop in the supply of fossil fuels or by policy intervention under market conditions the transition occurs later than in the social optimum hence we identify a market failure related to path dependence and technological lock in that can justify a strong policy intervention initially paradoxically well intended energy saving policies can actually lead to higher emissions as they reduce the incentives to invest in renewable energies by having a cushioning effect on the energy price hence these policies should be supplemented by other instruments that restore the incentives to invest in renewable energies finally we discuss the influence of monopoly power in the market for innovations we show that market power can alleviate the problem of technological lock in but creates a new market failure that reduces static efficiency

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

supplier induced demand a disequilibrium test this paper tests the hypothesis of market disequilibrium and supplier induced demand in the market for physicians services using canadian data from the period prior to the introduction of national health insurance the results support the hypothesis of disequilibrium with rapid upward adjustment of fees in the face of excess demand and extremely slow downward adjustment of fees in response to excess supply they do not support the hypothesis that physicians induced demand in the face of an excess supply of services

irreversible abatement investment under cost uncertainties tradable emission permits and emissions charges abstract a major concern with tradable emission permits is that stochastic permit prices may reduce a firm s incentive to invest in abatement capital or technologies relative to other policies such as a fixed emissions charge however under efficient permit trading the permit price uncertainty is caused by abatement cost uncertainties which affect investment under both permit and charge policies we develop a rational expectations general equilibrium model of permit trading and irreversible abatement investment to show how cost uncertainties affect investment under permits we compare the resulting investment incentive with that under charges after controlling for the assumption that random shocks affect the abatement cost linearly we find that firms investment incentive decreases in cost uncertainties but more so under emissions charges than under permits therefore tradable permits in fact may help maintain firms investment incentive under uncertainty

identification of physician induced demand whether market failure exists in the health care sector because physicians induce demand in their own self interest has not been clearly addressed because of identification problems a model is developed which includes the patient s financial burden as a limiting factor on demand inducement new data from a national survey are used to test the demand inducement hypothesis and identify physician initiated expenditures when individual health insurance and other factors are held constant additional corroboration of the physician induced demand hypothesis is found but the magnitude of the effect is very small and is statistically significant only for more discretionary expenditures

a further analysis of the physician inducement controversy this article extends several recent contributions that have compared the physician induced demand hypothesis to the theory of a monopoly where advertising is included as a decision variable by introducing a standard profit maximizing model with inducement it derives the conditions for the optimum level of inducement to show that the controversy over inducement is directly related to the elasticity of demand for the physician s services in particular inducement is likely to be prevalent only where the individual physician has a high degree of monopoly power as measured by its elasticity of demand it will disappear entirely as competitive conditions are approached furthermore the article argues that a physician s level of induced output is likely to diminish and not increase as others have suggested following increases in physician supply

a competitive carbon emissions scheme with hybrid fiscal incentives the evidence from a taxi industry abstract as two major approaches to reduce carbon emissions command and control instruments and market based carbon trading systems have their own weaknesses our paper first proposes a type of endogenous equilibrium methodology to dynamically derive the industrial carbon emissions standards at the equilibrium the sum of all carbon assets and liabilities is zero in the considered industry moreover the standards fall over time with low carbon technological advance most importantly combining pigou s and coase s ideas we construct a fiscal instrument accounting for both carbon taxes and allowances based on the dynamically improved emissions standards and carbon trading prices this no revenue for government method implements a self operated ecology for carbon trading market finally considering the waterloo recession of carbon prices we introduce an adjustment factor into the model which generates a negative feedback mechanism with carbon prices to support our idea we present the application to beijing taxi industry in detail and raise relative policy implications based on the evidence

the market for physicians services theoretical implications and an empirical test of the target income hypothesis over the period 1965 to 1977 expenditure for health care in the united states increased from 181 per capita to 697 per capita the share of gnp composed of health care expenditures grew from 5 9 in 1965 to 8 8 in 1977 over this same period the number of physicians in the u s increased from 153 physicians per 100 000 population to 194 physicians per 100 000 such startling figures have generated much interest in the economics of health care with special concern about physician behavior and its effects upon health care costs the frequent empirical finding of a positive partial correlation between physicians fees or earnings and the number of physicians per capita have led many observers to eschew standard supply and demand models in favor of models that allow physicians themselves to significantly affect the demand for their services an assumption that physicians influence demand can not by itself differentiate a model from standard microeconomic models a profit maximizing doctor possessing costless demand shifting powers would shift demand to the greatest possible extent and then choose price and quantity to maximize profits subject to that shifted demand function a demand shifting model can yield results which are qualitatively different from those predicted by a standard model only with a behavioral assumption other than profit maximization the assumption of satisficing behavior on the part of physicians is a common substitute numerous empirical findings have been cited as evidence of the validity of the satisficing with demand shifting models much of this evidence however has been obtained as a by product of estimates of the demand for physician services rather than as the result of the estimation of a supply induced demand with satisficing model this lack

a clarification of theories and evidence on supplier induced demand for physicians services this article both simplifies and extends the literature on physician induced demand it shows that inducement should be expected in all imperfectly competitive markets that are also characterized by incomplete agency relationships more important it argues that confusion over the extent of the inducement phenomenon has been created by several contributions that fail to distinguish between the effects of changes in physician population ratios on changes in the individual physician s output and the effects on per capita utilization in particular it demonstrates that by confounding units of analysis the major empirical results found in recent articles by rossiter and wilensky are contradicted by their model their evidence however together with findings from other studies are reinterpreted to suggest that physicians are even more constrained than is generally believed in being able to induce increases in demand

real exchange rates and sectoral productivity in the eurozone we investigate the link between real exchange rates and sectoral total factor productivity measures for countries in the eurozone real exchange rate patterns closely accord with an amended balassa samuelson interpretation both in cross section and time series we construct a sticky price dynamic general equilibrium model to generate a cross section and time series of real exchange rates that can be directly compared to the data under the assumption of a common currency estimates from simulated regressions are very similar to the empirical estimates for the eurozone our ndings contrast with previous studies that have found little relationship between productivity levels and the real exchange rate among high income countries but those studies have included country pairs which have a oating nominal exchange rate

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

price volatility and risk exposure on market based environmental policy instruments abstract we explore the efficacy of price and quantity controls as environmental policy instruments in a stochastic setting in which agents are risk averse we demonstrate that the assumption of risk aversion may improve the performance of a tax relative to that of a system of tradable quotas and that restricting quota trade may enhance efficiency even though risk aversion in itself limits volumes of trade the government may be able to improve the performance of a tradable quota system by judicious choice of distribution and amount of initial quotas and by trading pro actively in the quota market

on the long run efficiency of auctioned vs free permits abstract when marketable permits affect the entry exit decisions of competitive firms the efficient proportion of auctioned vs free permits depends on the pollutant s nature all permits should be auctioned for global pollutants and some should be free for local pollutants

vacancy posting job separation and unemployment fluctuations abstract what is the relative importance of hiring and separation in driving unemployment fluctuations this paper presents a framework to decompose the moments of unemployment and study the respective contributions of vacancy posting a measure of firms hiring efforts and separation separation accounts for about 40 of unemployment s variance compared to 60 for vacancy posting and contributes to about 60 of unemployment steepness asymmetry the fact that unemployment increases faster than it decreases further while vacancy posting is on average the most important contributor of unemployment fluctuations the opposite is true around business cycle turning points when separation is responsible for most of unemployment movements

transaction costs and tradeable permits abstract tradeable permit systems are at the center of current interest and activity in market based reforms of environmental policy because these systems can offer significant advantages over conventional approaches to pollution control unfortunately claims made for their relative cost effectiveness have often been exaggerated transaction costs which may be significant in these markets reduce trading levels and increase abatement costs in some cases equilibrium permit allocations and hence aggregate control costs are sensitive to initial permit distributions providing an efficiency justification for politicians typical focus on initial allocations

neoclassical theory versus prospect theory evidence from the marketplace several experimental studies have provided evidence that suggest indifference curves have a kink around the current endowment level these results which clearly contradict closely held economic doctrines have led some influential commentators to call for an entirely new economic paradigm to displace conventional neoclassical theory e g prospect theory which invokes psychological effects this paper pits neoclassical theory against prospect theory by investigating data drawn from more than 375 subjects actively participating in a well functioning marketplace the pattern of results suggests that prospect theory adequately organizes behavior among inexperienced consumers but consumers with intense market experience behave largely in accordance with neoclassical predictions moreover the data are consistent with the notion that consumers learn to overcome the endowment effect in situations beyond specific problems they have previously encountered this transference of behavior across domains has important implications in both a positive and normative sense

nonspeculative bubbles in experimental asset markets lack of common knowledge of rationality vs actual irrationality we report the results of an experiment designed to study the role of speculation in the formation of bubbles and crashes in laboratory asset markets in a setting in which speculation is not possible bubbles and crashes are observed the results suggest that the departures from fundamental values are not caused by the lack of common knowledge of rationality leading to speculation but rather by behavior that itself exhibits elements of irrationality much of the trading activity that accompanies bubble formation in markets where speculation is possible is due to the fact that there is no other activity available for participants in the experiment

a model of physician behaviour with demand inducement we present a model of the physician patient relationship extending on the model by farley farley p j 1986 theories of the price and quantity of physician services journal of health economics 5 315 333 of supplier induced demand sid first we make a case for the way this model specifies professional ethics physician competition and sid itself second we derive predictions from this model and confront them with the neoclassical model finally we stress the importance of considering how sid affects patient welfare in providing an example where physicians ability to induce makes patients better off to evaluate patient welfare we derive approximations of the patients welfare loss due to physician market power in both the neoclassical model and the inducement model

effects of carbon tariffs trading policy on duopoly market entry decisions and price competition insights from textile firms of developing countries abstract some developed countries are considering to implement a controversial climate policy called the carbon tariffs policy on the developing country firms which produce in their own countries and transport goods such as textiles to the developed country markets this policy has significant impacts on international trade and business to examine this policy we consider the scenario in which a developing country firm and a developed country firm both manufacture the same type of textile products which are differentiated but partially substituted thus the cost differences between these two firms establish a price competition model this model is solved through a two stage game where each firm chooses its emissions reduction technology in the first stage and decides its price in the second stage we explore the effects of carbon tariffs on developing country firms and offer coping strategies for them furthermore the effects of carbon tariffs on total carbon emissions and global social welfare are also analyzed we conclude that i carbon tariffs greatly threaten the survival of developing country firms in the developed country market ii both total carbon emissions and global social welfare are reduced in the presence of carbon tariffs iii the textile firms of developing countries should make efforts to 1 choose the appropriate technology for emissions reduction 2 reduce their cost of emissions reduction and 3 reduce the product differences with those developed country firms

experimental tests of the endowment effect abstract the endowment effect which predicts undertrading and a willingness to accept greater than willingness to pay is studied using responses that remove all reference to buying or selling and focuses only on choice tasks the results significantly lower the willingness to pay willingness to accept discrepancy but the latter is still significant a high efficiency open display uniform price auction is used to exchange mugs for money since mugs are randomly assigned to half of 2n subjects n 2 mugs are predicted to trade less than n 2 mugs trade on average but more than previously reported the phenomenon exists but is less prominent than reported previously

emission taxes and tradable permits a comparison of views on long run efficiency we compare three different views on the long runefficiencies of emission taxes which includethresholds inframarginalexemptions and of tradeable emission permitswhere some permits areinitially free the differences are caused bydifferent assumptions aboutwhether thresholds and free permits should besubsidies given only to firmsthat produce or full property rights treatingtax thresholds as well asfree permits as property rights would departfrom the conventional view but would allow greater flexibility in makingeconomic instruments bothefficient and acceptable such flexibilitycould be very important inachieving efficient control of greenhouse gasemissions

environmental policy a la carte letting firms choose their regulation under uncertainty the optimal choice between price and quantity instruments depends on the technology of the regulated firms which is often private information we consider an environmental policy that delegates the prices versus quantities decision to the firms by offering them the choice between an emissions tax and permit trading such an approach is currently used in swiss climate policy we provide a detailed characterization of the optimal policy and show that this approach reduces expected social costs compared to a pure tax or permit trading regime we demonstrate that an optimal allocation of firms to instruments can be achieved despite substantial informational constraints and that all firms gain from the introduction of the instrument choice compared to optimally designed single instrument policies furthermore we discuss the conditions under which this approach is likely to be preferable to a hybrid regulation

optimal environmental taxation in the presence of other taxes general equilibrium analyses this paper examines the optimal setting of environmental taxes in economies where other distortionary taxes are present we employ analytical and numerical models to explore the degree to which in a second best economy optimal environmental tax rates differ from the rates implied by the pigovian principle according to which the optimal tax rate equals the marginal environmental damages both models indicate contrary to what several analysts have suggested that the optimal tax rate on emissions of a given pollutant is generally less than the rate supported by the pigovian principle moreover the optimal rate is lower the larger are the distortions posed by ordinary taxes numerical results indicate that previous studies may have seriously overstated the size of the optimal carbon tax by disregarding pre existing taxes this abstract was borrowed from another version of this item

revisiting the case for intensity targets better incentives and less uncertainty for developing countries abstract in the debate on post kyoto global climate policy intensity targets which set a maximum amount of emissions per gdp figure as prominent alternative to kyoto style absolute emission targets especially for developing countries this paper re examines the case for intensity targets by critically assessing several of its properties namely i reduction of cost uncertainty ii reduction of hot air iii compatibility with international emissions trading iv incentive to decouple carbon emissions and economic output decarbonization and v use as a substitute for banking borrowing relying on simple analytical models it is shown that the effect on cost uncertainty is ambiguous and depends on parameter values and that the same holds for the risk of hot air that the intensity target distorts international emissions trading that despite potential asymmetries in the choice of abatement technology between absolute and intensity target the incentive for a lasting transformation of the energy system is not necessarily stronger under the latter and finally that only a well working intensity target could substitute banking borrowing to some extent but also vice versa overall the results suggest that due to the increased complexity and the potentially only modest benefits of an intensity target absolute targets remain a robust choice for a cautious policy maker

futures contracting and dividend uncertainty in experimental asset markets prices in experimental asset markets tend to bubble and then crash to dividend value at the end of the asset s useful life explanations for this phenomenon are 1 that participants cannot form reliable future price expectations or 2 dividend risk aversion we report the results of experiments to test these hypotheses in one experimental series a futures market is introduced so that participants can obtain information on future share prices in another series of experiments the per period dividend is known with certainty the futures market treatment reduced the bubble the certain dividend treatment had little effect on the character of bubbles with inexperienced traders copyright 1995 by university of chicago press

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

rushing the impatient allowance reserves and the time profile of low carbon investments postponing the issue date of allowances in a cap and trade scheme by e g a reserve mechanism impacts the time profile of low carbon investments if the postponement constrains intertemporal arbitrage short term investments increase but long term investments are deterred this effect aggravates the shortage of long term investments at least partially attributed to firms impatience the cancellation of allowances agreed for phase iv of the eu ets is suitable to counteract the negative effects of cap neutral postponement on long term investments by making the reserve redundant all effects crucially depend on how firms form expectations about future allowance prices

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

the harrod balassa samuelson hypothesis real exchange rates and their long run equilibrium the harrod balassa samuelson hypothesis frictionless perfectly competitive traded goods markets justify thinking of purchasing power parity ppp as the main driver of exchange rates in the long run but differences in the traded non traded sectors of economies tend to be persistent and affect movements in local price levels in ways that upset the ppp balance the underpinning of the harrod balassa samuelson hypothesis hbs this paper uses panel data techniques on a broad collection of countries to investigate the long run properties of the ppp hbs equilibrium using novel local projection methods for cointegrated systems these semi parametric methods isolate the long run behavior of the data from contaminating factors such as frictions not explicitly modelled and thought to have effects only in the short run absent the short run effects we find that the estimated speed of reversion to long run equilibrium is much higher in addition the hbs effects means that the real exchange rate is converging not to a steady mean but to a slowly to a moving target the common failure to properly model this effect also biases the estimated speed of reversion downwards thus the so called

innovation in pollution control comparisons of the various institutional arrangements for controlling pollutant emissions from individual sources effluent fees effluent control subsidies marketable permits and direct command and control regulation have usually focused on their static efficiency properties and institutional feasibility e g dales 1968 zerbe 1970 baumol and oates 1975 kneese and schultze 1975 marin 1978 mills and white 1978 spence and weitzman 1978 russell 1979 a relatively neglected area has been the study of how each arrangement influences innovation in pollution control a few studies e g kneese and schultze 1975 marin 1978 mills and white 1978 russell 1979 have casually claimed that the control methods that rely on economic incentives provide superior incentives for innovation but there have been few systematic studies of the question this paper provides a simple model of pollution control innovation by a profitmaximizing polluter who is subject to the various control methods the consequences of the methods will be explored in three major contexts first we assume that the polluter and the innovation is a small enough part of the overall pollution problem so that none of the important marginal conditions are changed by the innovation second we assume that the polluter and the innovation are important enough so that marginal conditions are changed by the innovations but that the governmental authority determining pollution control incentives or levels fails to make the appropriate adjustments third we again assume that the innovation causes marginal conditions to change but in this case the governmental authority makes the appropriate adjustments we use the term ratcheting to describe this last phenomenon in all cases we assume that the innovating polluter correctly predicts the reactions of the governmental authority and bases his innovation decisions on that prediction a profit maximizing entrepreneur would normally be expected to adopt any innovation that promised gains present discounted value to him in excess of initial

rising occupational and industry mobility in the united states 1968 97 we document and analyze the high level and the substantial increase in worker mobility in the united states over the 1968 97 period at various levels of occupational and industry aggregation this is important in light of the recent findings that human capital of workers is largely occupation or industry specific to control for measurement error in occupation and industry coding we develop a method that utilizes the psid retrospective occupation industry supplemental data files we emphasize the importance of our findings for understanding a number of issues such as the changes in wage inequality aggregate productivity job stability and life cycle earnings profiles

intersectoral labor mobility and the growth of the service sector one of the most striking changes in the u s economy over the past 50 years has been the growth in the service sector between 1950 and 2000 service sector employment grew from 57 to 75 percent of total employment however over this time the real hourly wage in the service sector grew only slightly faster than in the goods sector in this paper we assess whether or not the essential constancy of the relative wage implies that individuals face small costs of switching sectors and we quantify the relative importance of labor supply and demand factors in the growth of the service sector we specify and estimate a two sector labor market equilibrium model that allows us to address these empirical issues in a unified framework our estimates imply that there are large mobility costs output in both sectors would have been double their current levels if these mobility costs had been zero in addition we find that demand side factors that is technological change and movements in product and capital prices were responsible for the growth of the service sector

policy interactions risk and price formation in carbon markets carbon pricing is an important mechanism for providing companies with incentives to invest in carbon abatement price formation in carbon markets involves a complex interplay between policy targets dynamic technology costs and market rules carbon pricing may under deliver investment due to r d externalities requiring additional policies which themselves affect market prices also abatement costs depend on the extent of technology deployment due to learning by doing this paper introduces an analytical framework based on marginal abatement cost mac curves with the aim of providing an intuitive understanding of the key dynamics and risk factors in carbon markets the framework extends the usual static mac representation of the market to incorporate policy interactions and some technology cost dynamics the analysis indicates that supporting large scale deployment of mature abatement technologies suppresses the marginal cost of abatement sometimes to zero whilst increasing total abatement costs however support for early stage r d may reduce both total abatement cost and carbon price risk an important aspect of the analysis is in elevating risk management considerations into energy policy formation as the results of the stochastic modelling indicate wide distributions for the emergence of carbon prices and public costs around the policy expectations

factor price uncertainty technology choice and investment delay abstract this paper develops a theory of putty clay investment under factor price uncertainty using a brownian motion framework ex ante the firm faces a choice of technologies that differ by their relative factor intensities but ex post technologies are leontief the presence of competing technologies and factor price uncertainty can cause delay of profitable investments for a monopolist firm facing a one time investment decision furthermore uncertainty can cause an existing firm to wait for more extreme operating cost differentials before switching technologies these delays in investment are present even without considering the effect of uncertainty on the firm s choice of scale

net foreign assets productivity and real exchange rates in constrained economies empirical evidence suggests that real exchange rates rer behave differently in developed and developing countries we develop an overlapping generations two sector exogenous growth model in which rer determination may depend on the country s capacity to borrow from international capital markets the country faces a constraint on capital inflows with high domestic savings the rer only depends on the productivity spread between sectors balassa samuelson effect if the constraint is too tight and or domestic savings too low the rer depends on both net foreign assets transfer effect and productivity we then analyze the empirical implications of the model and find that in accordance with the theory the rer is mainly driven by productivity and net foreign assets in constrained countries and by productivity in unconstrained countries

timing and commitment of environmental policy adoption of new technology and repercussions on r d we investigate the interplay between environmental policy incentives to adoptnew technology and repercussions on r d we study a model where a monopolistic upstream firm engages in r d and sells advanced abatement technology to polluting downstream firms we consider four different timing and commitment regimes of environmental tax and permit policies ex post taxation or issuing permits interim commitment to a tax rate a quota of permits after observing r d success but before adoption and finally two types of ex antecommitment before r d activity one with a unique tax rate quota of permits the other one with a menu of tax rates permit quotas we study the second best tax and permit policies and rank these with respect to welfare in particular we find that commitment to a menu of tax rate dominates all other policy regimes

technological diffusion in primary health care the paper contains a theoretical and empirical analysis of the driving forces behind the diffusion of dry chemical laboratory equipment in norwegian primary health care the empirical analysis is embedded in a theoretical model of a dynamic investment problem focusing on heterogeneity in the potential adopters profit functions the empirical analysis indicates that most adopters are too late in adopting the new technology a logit analysis of the diffusion process lends some support to the notion that profit function heterogeneity influences the diffusion process an offspin of the empirical analysis is information on the reimbursement system indicating that this system does not promote efficient resource allocation in the sector

environmental regulation with technology adoption learning and strategic behavior we analyze a model of environmental regulation with learning about environmental damages and endogenous choice of emissions abatement technology by a polluting firm we compare environmental policy under discretion in which policy is updated upon learning new information versus under rules in which policy is not updated when investment in abatement technology is made prior to the resolution of uncertainty neither discretion nor rules with either taxes or standards achieve an efficient solution except in special cases when there is little uncertainty rules are superior to discretion because discretionary policy gives the firm an incentive to distort investment in order to influence future regulation however when uncertainty is large discretion is superior to rules because it allows regulation to incorporate new information taxes are superior to standards under discretion regardless of the relative slopes of marginal costs and marginal damages for the case of quadratic abatement costs and damages

job finding and separation rates in the oecd abstract we provide a set of comparable estimates of average monthly job finding and separation rates for over 20 oecd countries that can be used for the cross country analysis of labor markets

prices vs quantities technology choice uncertainty and welfare technological improvements have proven essential in mitigating environmental problems such as climate change depletion of the ozone layer and acid rain while it is well known that price and quantity based regulatory instruments provide different investment levels the effects on the choice between different technologies have received scant attention this paper expands on the prices versus quantities literature by investigating firms technology choice in the face of demand and supply side uncertainty i show that the regulator can not design tradable emissions permits and an emissions tax such that the two regimes are equivalent even in terms of expected values moreover a tax encourages the most flexible abatement technology if and only if stochastic costs and the equilibrium permit price have sufficiently strong positive covariance compared with the variance in consumer demand for the good produced finally the firms technology choices are socially optimal under tradable emissions permits but not under an emissions tax