the renewables portfolio standard in texas an early assessment texas has rapidly emerged as one of the leading wind power markets in the united states this development can be largely traced to a well designed and carefully implemented renewables portfolio standard rps the rps is a new policy mechanism that has received increasing attention as an attractive approach to support renewable power generation though replacing existing renewable energy policies with an as of yet untested approach in the rps is risky early experience from texas suggests that an rps can effectively spur renewables development and encourage competition among renewable energy producers initial rps targets in texas were well exceeded by the end of 2001 with 915 mw of wind installed in that year alone rps compliance costs appear negligible with new wind projects reportedly contracted for well under 3 us cent k wh in part as a result of a 1 7 us cent kwh production tax credit an outstanding wind resource and an rps that is sizable enough to drive project economies of scale obliged retail suppliers have been willing to enter into long term contracts with renewable generators reducing important risks for both the developer and the retail supplier finally the country s first comprehensive renewable energy certificate program has been put into place to monitor and track rps compliance c 2002 published by elsevier science ltd less

incentive effects of benevolent intervention the case of government loan guarantees abstract there has been a substantial recent growth in government loan guarantees to ailing firms in the united states this paper investigates the potential incentive effects of this practice using the simplest available two period model it is shown that when firms know that loan guarantees may be forthcoming they may be induced to adopt riskier investments and take on more leverage these perverse incentive effects imply that the actual loan guarantees related contingent liability of the government could be much larger than suspected our policy recommendation is that the government either abandon the practice altogether or set up a federal agency that sells loan guarantees to all firms at prices that depend on the riskiness of the firm s assets and its leverage

can falling supply explain the rising return to college for younger men a cohort based analysis although the college high school wage gap for younger u s men has doubled over the past 30 years the gap for older men has remained nearly constant in the united kingdom and canada the college high school wage gap also increased for younger relative to older men using a model with imperfect substitution between similarly educated workers in different age groups we argue that these shifts reflect changes in the relative supply of highly educated workers across age groups the driving force behind these changes is the slowdown in the rate of growth of educational attainment that began with cohorts born in the early 1950s in all three countries

support systems for the diffusion of renewable energy technologies an investor perspective concern over climate change impacts and the projected depletion of fossil fuels has urged more governments to adopt policies that stimulate the diffusion of renewable energy technologies ret with an increasingly diverse suite of support instruments the question emerges as to which instruments or combinations are able to achieve faster more substantial diffusion results although various support instruments were extensively addressed in policy studies there is still no consensus this is partly because many policy studies take a policy maker approach in comparing support instruments leaving relationships between policy design and policy results as a black box this paper proposes an investor oriented perspective to analyze the diffusion potential of support systems for ret the main argument is that it is not the type of support instrument but rather its risk profitability characteristics that influence investor behavior and the rate of diffusion the two instruments most frequently discussed and compared are the feed in tariff and the quota model the analysis in this paper concludes that policy design is crucial while often feed in tariffs are applauded and quota system feared feed in tariffs may also bring about disappointing diffusion results when poorly designed while quota systems may be also conceived as attractive instruments for independent power producers

cross hedging and forward contract pricing of electricity we consider the problem of an electric power marketer offering a fixed price forward contract to provide electricity that it purchases from a potentially volatile and unpredictable fledgling spot energy market one option for the risk averse marketer who wants to hedge against the spot price volatility is to engage in cross hedging to reduce the contract s profit variance and to determine the forward contract price as a risk adjusted price the sum of a baseline price and a risk premium we show how the marketer can estimate the spot price relationship between two wholesale energy markets for the purpose of cross hedging as well as the optimal hedge and the forward contract s baseline price and risk premium

european schemes for promoting renewables in liberalised markets abstract the paper describes possibilities and problems for penetration of supply systems based on renewable energy sources in liberalised markets the analysis is based on recent development in eu with different models for support of installations based on renewable energy these include feed in models with guaranteed minimum tariffs tender models for different bands of technologies and green certificates trading models with obligatory consumer quota the paper describes the market situation in selected european countries including germany the uk holland and denmark an eu directive from september 2001 has postponed the decision on a possible harmonisation of promotional models until at least 2005 in order to obtain more practical experience with the different support schemes a critical evaluation is given in this paper of the different models with proposals for a balanced development between environmental and trading concerns it is argued that too much emphasis is presently given to the side of free trade at the expense of long range planning for a sustainable energy development

project finance and international energy development this paper explores the preference for and the features unique to project finance one of the favoured vehicles for funding energy development our main focus is on the interests of project sponsors commercial banks and host governments inclusion of the latter reflects the fact host governments are often leading participants in primary energy and energy related projects more recently they have come to use limited recourse structures to finance local infrastructure development traditional analyses whilst providing useful insights into the interests of leading project participants are incapable of isolating a single motive or set of motives that can comprehensively account for all of the features common to this form of debt within an options theoretic framework most of these ambiguities are resolved risk management long recognised as one of the primary reasons for choosing project finance over rival debt structures is affirmed as a key explanatory factor on the other hand options pricing theory provides a radically different perspective on how project finance contributes to the realisation of these objectives

why democracies produce efficient results by applying the standard tools of microeconomic analysis i argue that democratic markets work as well as economic markets in particular i show that previous work has greatly exaggerated the existence of principal agent and informational problems in electoral markets and has drawn incorrect conclusions

examining the hayek friedman hypothesis on economic and political freedom abstract this paper examines empirically the hypothesis made famous by nobel laureates friedrich a hayek and milton friedman that societies with high levels of political freedom must also have high levels of economic freedom in our judgment the hayek friedman hypothesis holds up fairly well to historical scrutiny using data on economic and political freedom for a sample of up to 123 nations back as far as 1970 we find relatively few instances of societies combining relatively high political freedom without relatively high levels of economic freedom in addition we find that these cases are diminishing over time finally we examine several cases of countries on different economic and political freedom journeys

institutions capital and growth the international development community has encouraged investment in physical and human capital as a precursor to economic progress recent evidence shows however that increases in capital do not always lead to increases in output we develop a growth model where the allocation and productivity of capital depends on a country s institutions we find that increases in physical and human capital lead to output growth only in countries with good institutions in countries with bad institutions increases in capital lead to negative growth rates because additions to the capital stock tend to be employed in rent seeking and other socially unproductive activities

a search equilibrium approach to the effects of immigration on labor market outcomes we analyze the impact of the skill biased immigration inux that took place during the years 2000 2009 in the united states within a search and matching model that allows for skill heterogeneity dierential search cost between immigrants and natives capital skill complementarity and possibly endogenous skill acquisition within such a framework we nd that although the skill biased immigration raised the overall net income to natives it may have had distributional eects specically unskilled native workers gained in terms of both employment and wages skilled native workers on the other hand gained in terms of employment but may have lost in terms of wages nevertheless in one extension of the model where skilled workers and immigrants are imperfect substitutes we nd that even the skilled wage may have risen

screening market signalling and capital structure theory this paper develops an equilibrium model in which informational asymmetries about the qualities of products offered for sale are resolved through a mechanism which combines the signalling and costly screening approaches the model is developed in the context of a capital market setting in which bondholders produce costly information about a firm s a priori imperfectly known earnings distribution and use this information in specifying a bond valuation schedule to the firm given this schedule the firm s optimal choices of debt equity ratio and debt maturity structure subsequently signal to prospective shareholders the relevant parameters of the firm s earnings distribution our objectives in this paper are threefold first we discuss an alternative equilibrium mechanism for resolving the informational asymmetry problem in a lemons type market in which some agents are a priori better informed than others this mechanism recently proposed by thakor 19 is distinct from and yet integrates the salient features of the screening see stiglitz 17 and viscusi 21 and signalling bhattacharya 41 paradigms second we demonstrate that the equilibrium notion developed is relevant to the determination of an interior optimal capital structure for a firm in a world of imperfect information this application of our model involves firms with intertemporally distributed cashflows which vary cross sectionally and are not necessarily independent and identically distributed i i d through time we use this multiperiod setting to address our third objective which is to explain a firm s debt maturity decision essentially our argument is that when both the size and timing of a firm s future earnings are indistinguishable ex ante from other firms in the economy the firm s capital structure and debt maturity choices could simultaneously function as signals of these a priori unknown parameters of its earnings the market structure we consider is similar to that in thakor 19 there are sellers each of whom offers a variety of products with qualities dependent upon a common set of exogenous attributes unique to the seller and buyers who are unaware of these attributes buyers interested in one of the products offered

capital budgeting technological innovation and the emerging competitive environment of the electric power industry abstract for most of this century the electric utility industry has operated as a regulated natural monopoly which produced a commodity product in an environment of low technological progress and sold it to a homogeneous captive market given these conditions the primary capital budgeting issues involved the timing of capacity additions and the mix of base load and peaking capacity this relatively simple and stable situation however has been eroded by market regulatory and technological changes as a consequence old embedded capital budgeting approaches are hindering the pursuit of efficiency with respect to the production and distribution of electric energy our purpose in this paper is to assess traditional utility capital budgeting procedures and to explore possibilities for improvement we begin with a review of traditional capital budgeting decision processes next we overview the changes that have emerged over the last two decades and explore capital budgeting processes more appropriate to this early competitive environment finally we project the changes a bit further and explore the capital budgeting techniques that may be useful in an advanced competitive environment

labour market performance effects of discrimination and loss of skill we examine the impact of discrimination on labor market performance when workers are subject to a risk of losing skills during an unemployment experience within a search and matching framework we show that both natives and immigrants are affected by discrimination discrimination in one sector has positive spillovers inducing employment to increase in the other sector and the effect on labor market performance therefore depends on whether discrimination is present in only one sector or in both discrimination may induce workers to train more or less than natives after having lost their skills dependent upon in which sector there is discrimination net output tends to be most negatively affected by discrimination among high skilled workers jel j15 j31 j61 j64 j71

the effects of immigration in frictional labor markets theory and empirical evidence from eu countries immigrants are new comers in a labor market as a consequence they lack of social networks and other country specific and not directly productive valuable assets affecting their relative bargaining position against employers we introduce this simple observation into a matching model of the labor market and show that immigrants increase employment prospects of competing natives to test the predictions of our model we exploit yearly vari ations between 1998 and 2004 in the share of immigrants within occupations of 12 european countries we identify the causal impact of immigrants on natives employment rate using an instrumental variable strategy based on historical settlement patterns across host countries and occupations by origin countries we find that natives employment rate increases in oc cupations and sectors receiving more immigrants moreover we highlight the heterogeneity of this impact across groups of immigrants and host countries along dimensions that affect immigrants natives relative reservation wages

investment in competitive electricity scope for incentive contracts abstract there is considerable interest in investment in electric power but few projects have actually taken off the situation with investor owned plant is that recovery of the total costs of a new power station via tariffs in the usual way is not automatic the difficulty most often is that the investor and the host system or government need to negotiate on issues such as long term energy pricing the rate of return risk sharing and long term guarantees this paper argues that incentive contracts incorporating risk sharing parameters whose values are set to account for perceptions of risk magnitude and the degree of willingness to take risk are a promising approach to the problem the scope of incentive power contracts the spatial relationship between return and parameters and the methods of deciding parameter values are discussed

illegal immigration and resource allocation this paper studies the effects of illegal immigration and the associated expansion of the underground economy on the allocation of resources commodity prices and wages of workers both in the short run when occupational mobility is restricted and in the long run when the skill composition of the labor force is endogenous the paper goes on to consider some of the fiscal implications of illegal immigration and the related expansion of underground activity effects of sanctions against employers hiring illegal aliens and measures to legalize the status of clandestine foreign workers are also examined the geographical focus is on developed countries primarily the united states and europe excerpt

the simple analytics of optimal growth with illegal migrants this paper analyses the impact of illegal migration on the optimal path of domestic resident consumption the analysis draws two important conclusions first if illegal migrants and domestic labour are perfect substitutes illegal migration necessarily lowers the long run per capita consumption of domestic residents second if illegal migrants and domestic labour are imperfect substitutes the effect on the long run per capita domestic consumption is ambiguous however in the cobb douglas case the result is clear cut and per capita domestic consumption rises as a result of illegal migration

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

financing energy projects experience of the international finance corporation this paper provides an overview of the recent trend towards private ownership and financing of power projects in the developing countries focusing on the role played by both private and public agencies in meeting the large financing challenges the paper draws upon the operational experience of the international finance corporation which has been involved in the financing of more than 30 private power projects in the developing countries over the past three decades among the issues that affect implementation of private power projects is the balancing of risk and reward to equity investors and to commercial lenders the paper discusses the principal sources of risk and the strategies used to manage them a related issue is the competition for capital on the international markets and the techniques that are being devised to bring more finance to the power sector finally the paper considers the role of government in bringing private investors to the power sector and the approaches being adopted to balance the needs of investors with the needs of the public

biomass power exploring the diffusion challenges in spain the use of biomass resources for power generation offers numerous benefits of interest for political decision makers fuel security rural and industrial development ecological benefits in spain policy instruments have been used since 1980 to stimulate biomass power generation however the diffusion outcome by 2007 was very disappointing only 525 mw this paper argues that two factors lie at the core of this the conceptualization of biomass resources by political decision makers in the instruments used and the desire that policy instruments be in line with market liberalization principles these generated a persistent economic obstacle for biomass power generation and impeded the development of markets for the supply of biomass resources the policy learning regarding the heterogeneity of biomass resources and the investors expectations on risks profitability and resource markets was very slow among political decision makers the paper contributes to the understanding of diffusion outcomes by proposing to analyse diffusion by means of five indicators types of resources technologies developers motivations to invest and project sizes besides the paper shows the usefulness of investigating policy instruments in terms of their risk and profitability characteristics this enables a better understanding of the diffusion patterns and outcomes

the production tax credit for wind turbine powerplants is an ineffective incentive abstract the us energy policy act epact of 1992 created a production tax credit of 1 5 kwh available for 10 years to promote certain renewable energy technologies including wind turbines this paper argues that the impact of the wind turbine production tax credit will be minimal the argument depends entirely on the nature of the project finance structure used by the private power industry for wind turbine development we show that tax credits can only be absorbed by equity investors if there is a large fraction of equity in the project capital structure this raises the financing cost of wind turbine projects compared to conventional power technology which relies on a large fraction of low cost debt if the tax credit were paid as a cash subsidy the capital structure could be shifted to low cost debt and financing costs could be significantly reduced

a critique of renewables policy in the uk the contribution of renewables to the reduction of co2 emissions is hampered by the operation of neta in two ways by its reflection of the high balancing costs within the context of the existing generation and network capacity and the scarcity of long term contracts in traded markets the government s approach of imposing contracts through the renewables obligation is inferior to the development of a carbon tax and risks picking winners from existing technologies rather than exploiting the full range of options

differences in work conditions between natives and immigrants preferences vs outside employment opportunities abstract immigrants are disproportionately employed in agriculture and construction sectors with relatively high injury rates what pushes immigrants to accept riskier and more strenuous work conditions we propose a circular model and show that differences in average work conditions borne by natives and immigrants are driven by both preferences and unearned income using french data we find that in line with the model s predictions i rigid wages are associated with a larger immigrant native gap in work conditions ii high unearned income individuals benefit on average from better work conditions iii for immigrants and natives with high unearned income differences in demographic characteristics explain part of the immigrant native gap in work conditions in contrast the gap largely persists among low unearned income people even once we have imposed identical demographic composition among them this suggests that there must be other factors that influence preferences over work conditions and that are missing in our empirical analysis

fixed feed in tariff versus premium a review of the current spanish system a b s t r a c t since 1998 the spanish government established a feed in system where res e generators could choose between two alternatives fixed feed in tariff and premium nowadays all res e 1 can be sold in the electricity market getting an additional premium except for solar photovoltaic one important novelty established in 2007 is a cap and floor system for facilities under the premium option the aim of this paper is to analyze and compare these two alternative options fixed fit and premiums which coexist at the same time in spain describe the evolution of both systems and evaluate its performance the introduction of this support system in spain led to very good results in terms of res e deployment the main advantage of the premium option is that it is a scheme integrated in the electricity market one disadvantage is that it can occasionally lead to overcompensation one way to try to avoid it is to set a cap value in order to evaluate the performance of this dual support system not only res e deployment has been assessed but also the policy stability the adequacy of res e production to the electricity demand pattern and the changes in the investors behaviour

the welfare effects of illegal immigration abstract this paper extends the work of ethier on illegal immigration by examining the optimal level of enforcement for the labor importing country in a two country model and by considering the effects of allowing capital mobility we derive a formula for the optimal level of enforcement against firms that hire illegal workers and show that the presence of enforcement costs makes the policy less efficient than a wage tax with capital mobility foreign workers gain from an increase in enforcement in the home country because capital is driven out of the home country

information reliability and a theory of financial intermediation this paper is an analysis of when it will be beneficial for agents engaged in the production of information to form coalitions the model is cast in a financial market framework thus leading to an identification of conditions sufficient for the existence of financial intermediaries intermediation is shown to improve welfare if informational asymmetries are present and the information generated to rectify these asymmetries is potentially unreliable the usual appeal to transactions costs to explain intermediation is not needed

the existence of equilibrium in discontinuous economic games ii applications in part i of this study we established two existence theorems for mixed strategy equilibrium in games with discontinuous payoff functions see theorems 4 4 and 5 5 in dasgupta and maskin 1986 hereafter d m 1986 in this second part we use the second of these two theorems to prove the existence of mixed strategy equilibrium in some wellknown discontinuous economic games that fail to have pure strategy equilibria the models we analyse are the bertrand edgeworth example of price setting duopolists with capacity constraints see section 2 2 price competition among firms producing differentiated products hotelling 1929 and d aspremont gabszewicz and thisse 1979 see section 2 3 spatial competition eaton and lipsey 1975 and shaked 1975 see section 3 and models of market dependent information rothschild and stiglitz 1976 and wilson 1977 section 4 the paper concludes section 5 with a classification of these models

on the macroeconomic and welfare effects of illegal immigration abstract this paper uses a dynamic general equilibrium model with labor market frictions to explore the economic consequences of illegal immigration in the baseline model native workers and illegal foreign workers compete for jobs in the same market but serve as imperfect substitutes in production the calibrated model generates a u shaped relationship between long run domestic consumption and the population share of illegal immigrants after taking into account both consumption and leisure i found that an increase in illegal immigration can generate significant welfare gains for the natives the baseline model is then extended to include heterogeneous workers in the domestic population

separating the influence of capitalism and democracy on women s well being abstract this empirical analysis seeks to determine which institutional arrangement capitalism or democracy tends to be more effective at improving women s well being and promoting gender equality in society country specific indexes measuring the degree of economic freedoms that exist within the market and the degree of political rights that exist within a democracy are used in a panel data analysis to explain the observed levels of various quality of life measures reflecting issues that are relevant to women these empirical results indicate that capitalism often has a stronger beneficial impact on many aspects of women s well being and gender equality in society

is the merchant power producer a broken model deregulated energy markets were founded on the merchant power producer a stand alone generator that sold its production to the spot and short term forward markets underpinned by long dated project finance the initial enthusiasm that existed for investment in existing and new merchant power plant capacity shortly after power system deregulation has progressively dissipated following an excess entry result in this article we demonstrate why this has become a global trend using debt sizing parameters typically used by project banks we model a benchmark plant then re simulate its performance using live energy market price data and find that such financings are no longer feasible in the absence of long term power purchase agreements

immigration skill heterogeneity and qualification mismatch we investigate the effects of us immigration on native workers in a search and matching environment that allows for skill heterogeneity differential search cost cross skill matching and imperfect transferability of human capital across borders we find that cross skill matching benefits the unskilled and hurts the skilled native workers similarly new unskilled immigration benefits the low skilled native workers and hurts the high skilled on the other hand new skilled immigration benefits both skilled and unskilled natives moreover when we simulate the effects of the actual us immigration influx that took place between the years 2000 and 2009 we find that both skilled and unskilled native workers gain we also find that initially an improvement in the transferability of human capital benefits the high skilled natives at the expense of the low skilled nevertheless below a certain overeducation ratio further improvements in the transferability of human capital make both types of native workers worse off

political regimes and economic growth arguments that relate regimes to growth focus on property rights pressures for immediate consumption and the autonomy of dictators while everyone seems to agree that secure property rights foster growth it is controversial whether democracies or dictatorships better secure these rights the main mechanism by which democracy is thought to hinder growth is pressure for immediate consumption which reduces investment only states that are institutionally insulated from such pressures can resist them and democratic states are not the main argument against dictatorships is that authoritarian rulers have no interest in maximizing total output these views are summarized in turn

postwar british economic growth and the legacy of keynes the policies used by britain to finance world war ii represented a dramatic departure from the policies used to finance earlier wars and were very different from the policies used by the united states during the war following keynes s recommendations britain taxed capital income at a much higher rate than the united states during the war and for much of the postwar period we analyze quantitatively the policies designed by keneys using an endogenous growth model and the ncoclassical growth model we also evaluate the implications of tax smoothing policies we find that the welfare costs of keynes s policies were very high relative to a tax smoothing policy and argue that britain s poor macroeconomic performance in the early postwar period is a consequence of the high tax rates levied on capital income

bankruptcy limited liability and the modigliani miller theorem this paper examines the validity of the modigliani miller theorem in the presence of bankruptcy the theorem asserts that the value of a firm and the set of return patterns that the capital markets offer to private investors are independent of firm debt equity ratios the usual proof of the theorem is based on the presumption that in perfect capital markets borrowing by firms and borrowing by individuals can be perfect substitutes it is unclear whether this presumption is valid when there is a positive probability that either the firm or the individual who borrows to invest in the firm goes bankrupt on the one hand joseph stiglitz 1969 and robert merton have argued that the modigliani miller theorem remains valid even with bankruptcy if agents who borrow to invest in a firm can limit their liability to the amount of collateral they put up on the other hand vernon smith 1972 has argued that a margin loan which is secured by a pure equity collateral has a different return pattern from a direct loan to the firm and cannot serve as a substitute for the latter see also david baron smith s argument raises a number of issues first it brings out the important fact that return patterns for limited liability borrowing and lending depend on the composition of the portfolio that serves as collateral if a firm goes bankrupt a pure equity collateral is worthless whereas a collateral that contains some bonds may still earn a positive return because the bonds have a privileged claim to the firm s remaining assets in general margin contracts with different collateral compositions will generate different return patterns both for the borrower and the lender given this multiplicity of return patterns on margin loans one would not expect that all margin loans can be used as substitutes for direct loans to the firm this intuition is confirmed by smith s demonstration that a particular margin loan namely the loan on pure equity collateral cannot serve this purpose the question remains open whether this is actually needed for the modiglianimiller theorem it might be enough if some appropriate margin loan could be used as a substitute for lending to the firm in pursuing this problem one finds a gap in the standard proof of the modiglianimiller theorem usually one applies an arbitrage argument to show that as a firm changes its debt equity ratio investors in shares and bonds adjust their portfolios so as to leave their overall return patterns unchanged no such arguments are given for other securities related to the firm in particular for margin investments and for margin loans that serve to finance those margin investments without an analysis of professor of economics university of bonn research on this paper was supported by nsf grant soc 75 13437 at princeton university and by the deutsche forschungsgemeinschaft i have benefited from the advice of dwight jaffee and an anonymous referee in a similar vein stiglitz 1972 asserts the value of the firm decregses because there is a divergence in the estimation of the chances of bankruptcy between the lender and the borrower p 467 this analysis rests upon a form of market segmentation that is without economic merit in his model there are two groups of agents optimists and pessimists the optimists invest all their wealth in the firm s equity valued to make the rate of return equal to that on the riskless asset the pessimists are indifferent between the risky firm s bonds and the riskless asset it follows that the optimists being more optimistic than the pessimists must prefer the risky bond to the riskless asset and hence to the equity yet stiglitz assumes that the optimists invest in the equity and not in the risky bond of course if one group invests all its wealth into one asset that asset need not satisfy a marginal equality condition at all a correct analysis of his model leads to the results of this paper

the renewable portfolio standard design considerations and an implementation survey renewables have social and environmental bene ts compared to conventional electricity sources but are rarely competitive on a strict nancial cost basis this is because conventional sources are sometimes subsidized their full pollution costs are ignored and renewables involve newer higher cost technologies whose relative costs will fall with commercialization governments use several mechanisms to support renewables including direct nancial support grants loans indirect support r d demonstrations reform of nancial costs of conventional sources subsidy removal pollution taxes and the renewable portfolio standard rps the rps requires a minimum share of electricity from renewable energy sources its use is spreading because it maintains an incentive for renewable producers to reduce costs links the regulated market outcome to an environmental target and reduces government involvement although it is too early to evaluate fully its e ectiveness the survey for this study explored implementation issues in three european countries nine us states and australia and found the following the rps target is usually set to have environmental bene ts without causing signi cant price increases cost caps are sometimes used most jurisdictions limit eligibility to gridconnected domestic renewables the rps is usually applied to producers rather than consumers and to energy output not capacity flexibility mechanisms are desired but a challenge to implement administration in the us and australia is by government with delegation to independent utility regulators while in europe it is more the responsibility of government everywhere the rps is applied alongside other mechanisms of renewables support 2001 elsevier science ltd all rights reserved

policies to accelerate the growth of offshore wind energy sector in india abstract india s power generation capacity needs to be augmented to support the growing demands for electricity india which has predominantly used fossil fuels to power its generators need to make a switch to clean energy fuels but renewable sources form a miniscule portion 26 gw 12 of india s overall installed power capacity 210 gw there is no contribution from offshore wind farms to the energy basket for india as there is no policy framework to encourage the development of offshore wind farms several european countries have tapped the offshore wind energy potential to reduce their dependence on adopted by these countries to identify the core components 21 of them of robust policy intervention a detailed questionnaire was administered to 181 stakeholders of wind energy in india to seek their feedback on these building blocks these core components variables in research parlance are then subjected to factor analysis to understand the underlying structure of the variables the factor analysis logically reduces these 21 variables into five factors government support fiscal and quota based incentives availability of local expertise capital for investments and building an enabling r d ecosystem which are then fed into a logistic regression model as independent variables to predict the probability of growth of offshore wind energy dependent variable in the country the logistic regression model gives the weight the impact of these independent variables in influencing the growth of offshore wind energy in india it emerges that government support fiscal and quota based incentives and building an enabling r d ecosystem have a much higher impact on the growth of offshore wind energy for india this paper fills the gap of absence of an empirically tested framework on offshore wind energy policy for india

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

debt and taxes and uncertainty with a graduated personal tax schedule miller showed that there could be an equilibrium debt supply for the corporate sector as a whole in the presence of uncertainty there is also a unique debt equity ratio for each individual firm and this ratio is related to the firm s operational risk characteristics however if firms merge and spin off in response to tax incentives the identity of firms is ambiguous and only the corporate sector is a meaningful construct these arguments are developed in both discrete and continuous models that employ extensions of the arbitrage free pricing theory in his famous paper debt and taxes 1977 merton miller 11 showed that the original miller modigliani propositions on the irrelevance of capital structure were not necessarily overturned by considerations of taxation miller argued that with a broad enough span of progressivity in personal income taxation the corporate tax advantage to the issuance of debt would be offset by the disadvantage to investors of receiving ordinary income on personal account in equilibrium the differential rates of return on equity and debt would be such that the marginal investor would be indifferent between purchasing debt instruments or equity the margin would be determined by the total amount of debt issued by the corporate sector but in a competitive world it would be unaffected by the debt issued by any one firm as a consequence the total supply of corporate debt would be determined in equilibrium increasing to the point where aggregate corporate value was not enhanced by further debt financing but any individual firm would be looking at prices set at the margin and would find itself indifferent between issuing debt or equity the purpose of this article is to extend miller s argument by recognizing the differences between debt and equity when the environment is not certain we will not be concerned with what might be called corner questions i e with whether or not there is a marginal investor or an internal equilibrium to do so would obscure the basic points we have to make instead we will examine models that have internal equilibria and ordinary neoclassical marginal interpretations in related work de angelo and masulis 5 6 have also extended miller s analysis but their primary concern was with the effects of a more detailed treatment of the tax code and with the impact of bankruptcy we will deal with such matters only in passing our central concern is with the impact of uncertainty our main result is the finding that there is a relationship between the capital structure of the firm as induced by tax effects and ordinary beta measures

risk shifting through nonfinancial contracts effects on loan spreads and capital structure of project finance deals we study capital structure negotiation and cost of debt financing between sponsors and lenders using a sample of more than 1 000 project finance loans worth around us 195 billion closed between 1998 and 2003 we find that lenders i rely on the network of nonfinancial contracts as a mechanism to control agency costs and project risks ii are reluctant to price credit more cheaply if sponsors are involved as project counterparties in the relevant contracts and finally iii do not appreciate sponsor involvement as a contractual counterparty of the special purpose vehicle when determining the level of leverage

new directions in electric power financing this paper argues that it is necessary to raise the eyes from the current focus on independent power projects buttressed by guarantees to the longer horizon of electric power financing in open markets transitional strategies will need to move beyond the commonly seen ipp activity that occurs without fundamental sector reform and demand side incentives that introduce further market distortions these efforts will have to focus on macroeconomic stabilization removal of price distortions as well as sector and corporate reform mobilization of domestic capital will be essential for sustainable sector financing although guarantees to encourage power sector investment can be designed to selectively cover risks their elimination through fundamental sector reform should be the ultimate goal over the longer term traditional corporate finance should become a more common financing strategy than project finance innovations in performance risk management and consumer credit will be crucial to the financing of energy efficiency

women and labor market changes in the global economy growth helps inequalities hurt and public policy matters this report examines the level and changes in female and male participation rates employment segregation and female wages relative to male wages across the world economy it funds sufficient evidence to support the view that labor markets in developing countries are transformed relatively quickly in the sense that gender differentials in employment and pay are narrowing much faster than they did in industrialized countries however the report evaluates the inefficiencies arising from persisting gender differentials in the labor market and finds them to be potentially significant the estimates also indicate that the resulting deadweight losses are borne primarily by women while men gain mainly in relative terms there are no real winners from discrimination the paper concludes that growth benefits women at large inequalities can have significantly adverse effects on welfare and market based development alone can be a weak instrument doe reducing inequality between the sexes to break the vicious cycle of women s low initial human capital endowments and inferior labor market outcomes compared to men s the report proposes greater access to education and training for girls and women enforceable equal pay and equal employment opportunities legislation a taxation and benefits structure that treats reproduction as an economic activity and women as equal partners within households and a better accounting of women s work to include invisible production

the financing of the mexican electrical sector abstract this paper analyses the financial pattern of the mexican electricity sector its financial limits in both development and modernization of this strategic sector and the main options for resolving this financing problem including the proposals of the president fox government our allocation of risks and profitability analysis explain the present success in attracting private investments to expand both generation and transmission capacity through blt and ipp projects the financial limitation is nevertheless the low self financing of federal electricity commission cfe that will make it very difficult to obtain financing to fulfil blt and ipp contract compromises and to invest large sums in the expansion and modernization of the electricity sector the main options to resolve the financial problems of the mexican electricity sector are 1 the improvement of the present financial pattern 2 the opening of generation and supply segments to private capital with the preservation of the vertically integrated state owned utilities and 3 the proposals of the president fox economic transition team that consider the opening of generation and supply segments the setting up of an independent state owned company to operate both the electrical dispatching and a power pool and finally the transformation of cfe into a holding of state owned utilities of generation distribution and transmission

miller s equilibrium shareholder leverage clienteles and optimal capital structure the purpose of this paper is twofold first we examine the individual portfolio decisions when income from stocks and bonds is taxed at different rates second a rationale for the existence of risky debt in the presence of leverage related costs and differential personal income taxation is provided previous studies on capital structure with differential personal income taxation have ignored either the portfolio risk consideration and or the possibility of losing personal and corporate interest tax shields due to insufficient taxable earnings e g 8 2 3 14 13 6 7 1 9 19 20 21 23 in section i of this paper both the portfolio risk consideration and the possibility of losing personal and corporate interest tax shields are explicitly introduced this enables us to provide a rationale for the shareholder leverage clientele phenomenon within a mean variance framework we also demonstrate a non corner solution for the optimal corporate capital structure in a tax environment similar to that of miller s debt and taxes 14 in sections ii and iii of this paper miller s world is further modified to include risky debt and the attendant costs we re examine and synthesize recent studies on the theory of optimal capital structure which have appeared since the publication of debt and taxes e g 4 6 7 13 19 20

financial risks for green electricity investors and producers in a tradable green certificate market this paper analyzes financial risks in a market for tradable green certificates tgc from two perspectives existing renewable producers and potential investors in new renewable electricity generation capacity the equilibrium pricing mechanism for a consumer based tgc market is described and a market with wind turbines as the sole renewable technology is analyzed in this framework tgc prices and fluctuations in production from wind turbines will be negatively correlated and as a result tgc price fluctuations can actually help decrease the total financial risk based on this recognition analytical expressions for revenue variance minimizing trading strategies are derived and an analysis of the demand and supply for financial hedging is used to show that forward contracts will be traded at a risk premium

the existence of equilibrium in discontinuous economic games i theory the article presents information about the existence of equilibrium in discontinuous economic games in this paper and its sequel presents study the existence of nash equilibrium in games where agents payoff functions are discontinuous the enquiry is motivated by a number of recent studies that have uncovered serious existence problems in seemingly innocuous economic games in the sequel to this paper authors have explained the utility function in the economic games referred to earlier are neither continuous nor quasi concave however they demonstrate that the payoff functions in mildly modified versions of these constructs exhibit two weaker forms of continuity which together with the requirement of quasi concavity suffice for the existence of an equilibrium from this one may conclude that at least in the modified versions of these models discontinuities in the payoff functions are not the real source of the problem rather it is the failure of the payoff functions to the quasi concave which is responsible for the non existence of equilibrium these observations bear on the existence of nash equilibrium in pure strategies

the value of the tax subsidy on risky debt the effect of corporate taxes on the market value of a levered firm continues to be a central issue in recent contributions in finance theory e g miller 1977 deangelo and masulis 1980 kim 1982 modigliani 1982 in these and other studies e g krause and litzenberger 1973 scott 1976 brennan and schwartz 1978 kim 1978 the relationship between market value and capital structure is established by formulating a tax subsidy function that specifies the partial effect of debt on the expected tax savings at the corporate level under the existing u s tax code a working assumption in most of these studies is that both principal and interest are tax deductible this assumption is made in the spirit of the original modigliani and miller 1963 formulation in which debt is taken to be perpetual and riskless indeed it is well known that the tax shield provided by the deduction of principal in a singleperiod framework has the same value as the tax shield from interest deductions in the case of perpetual and riskless debt under this assumption it is shown that in the absence of non debtthis paper examines the relationship between leverage and the value of the firm when non debt related tax shields are available and the corporate tax is levied as an income tax in a previous paper de angelo and masulis argue that in the presence of nondebt related tax shields the relationship between debt and firm value is concave resulting in an interior optimal capital structure when there is a tax induced differential in the cost of corporate debt their result derives from the fact that they assume the payment of debt principal and non debt related depreciation charges are deductible however the former deduction is consistent with a wealth tax while the latter is consistent only with an income tax we show that if the interest alone is deductible the debt firm value function is convex resulting in corner solutions to the capital structure problem the authors wish to thank richard castanias richard green lemma senbet and especially an anonymous referee for helpful comments and richard green and robert dammon for computational assistance

the simple analytics of optimal growth with illegal migrants a clarification abstract this paper reexamines the welfare effects of illegal immigration studied by hazari and sgro the simple analytics of optimal growth with illegal migrants journal of economic dynamics and control 28 1 141 151 in contrast to their negative conclusion we obtain ambiguous welfare prediction which is due to the presence of two opposing effects at work a positive exploitation effect and a negative intertemporal effect with cobb douglas production technology we show that per capita domestic consumption rises in the presence of illegal migration

moral hazard and adverse selection the question of financial structure this paper looks at the moral hazard and adverse selection problems confronting an entrepreneur offering securities to an uninformed but competitive financial market the adverse selection aspect of the problem is generated by the unobservable entrepreneur s ability to transform effort into value moral hazard arises because the investment decision is made subsequent to financing we consider the joint use of both debt and equity and characterize the equilibrium relation between capital structure and unobservable attributes it is shown that 1 investment and financing are not separable 2 there is an underinvestment problem for better firms and 3 simultaneous use of both debt and equity can resolve this difficulty we also establish a connection between expected terminal firm value and debt promised payment level and between share retention and standard deviation agency problems in corporate finance originated with the influential papers of jensen and meckling 11 myers 17 ross 21 and leland pyle 14 they show that the market imperfections induced by unobservable actions lack of contracting ability and information asymmetry generally lead to second best outcomes in which the distribution of corporate ownership is achieved only at significant cost these costs take the form of excessive perquisite consumption overinvestment underinvestment and incomplete diversification of personal investment portfolios moral hazard and adverse selection comprise two forms in which agency problems may take shape arrow 1 equates these two terms with hidden action and hidden information respectively moral hazard arises when the action undertaken by the agent is unobservable and has a differential value to the agent as compared to the principal adverse selection problems arise when the agent has more information than the principal the resolution of such difficulties has been explored in a number of contexts with both signals and contingent contracting mechanisms these definitions exclude certain agency problems in the delegation literature for which the preference incongruity results from a lack of precommitment rather than some exogenous feature of the model in corporate finance one would thus identify the jensen meckling paper with moral hazard because perquisites enter the insider s objective differently from outsiders while darrough is from columbia university and stoughton is from the university of california irvine the second author s research was partially supported by grant number 410 83 0786 r 1 from the social sciences and humanities research council of canada this paper was presented at the 1984 meetings of the western finance association in vancouver and at the 1985 european finance association meetings in bern we thank kose john and frans tempelaar for their comments at the meetings

avoided cost contracts can undermine least cost planning abstract utilities and regulatory agencies are increasingly turning to non utility sources of electric power in the usa many contracts with independent power producers ipps contain indexing terms under which an ipp s energy rates vary in response to energy cost changes on the purchasing utility system such indexing is often used to ensure that ipp rates track utility avoided costs unfortunately such indexing can undermine least cost planning if utility decisions can alter established ipp rates such indexing can also cause ratepayer interests to conflict with those of society the use of regional cost indices can solve the utility planning problem preventing the conflict between ratepayers and society however may require some use of cost based rather than value based ratemaking for ipps

optimal capital structure and project financing abstract we examine the financing and incorporation modes for new projects there are two objectives the first is to provide a theory of optimal capital structure that links risk leverage and value and is particularly applicable to large firms counter to conventional wisdom we show riskier firms acquire more debt pay higher interest rates and have higher values in equilibrium second we provide an economic rationale for project financing which entails organizing a new project legally distinct from the firm s other assets we explain why project financing involves higher leverage than conventional financing and why highly risky assets are project financed

is fairly priced deposit insurance possible we analyze risk sensitive incentive compatible deposit insurance in the presence of private information and moral hazard without deposit linked subsidies it is impossible to implement risk sensitive incentive compatible deposit insurance pricing in a competitive deregulated environment except when the deposit insurer is the least risk averse agent in the economy we establish this formally in the context of an insurance scheme in which privately informed depository institutions are offered deposit insurance premia contingent on reported capital the result holds for alternative sorting instruments as well this suggests a contradiction between deregulation and fairly priced risk sensitive deposit insurance this paper exposes a conflict between a deregulated competitive financial services industry on the one hand and fairly priced risk sensitive deposit insurance on the other we show that if depository institutions dis are perfectly competitive i e each makes zero profits on average then it is impossible to implement incentive compatible risk sensitive deposit insurance pricing recent distress among dis has fueled debate about reform of the existing deposit insurance system many believe that the prevailing risk insensitive premium structure encourages dis to choose excessively risky assets and that it should be replaced by deposit insurance premia linked to the dis choices of risk 2 risk sensitive deposit insurance pricing however imposes greater informational demands on the deposit insurer and runs afoul of both

deregulation and restructuring of the global electricity supply industry and its impact upon power plant suppliers abstract this paper analyses the deregulation and restructuring of the global electricity supply industry and its impact upon fuel usage generation technologies and suppliers of power plant deregulation encouraged the growth of new independent power producers whose business requirements transformed the power plant industry the plant suppliers had to develop new capabilities and services to compete in the global market economies of scale and scope became crucial given the cost of developing the new technologies and providing the services required by the operators this led to the global consolidation of the power plant industry because only large integrated power engineering companies had the necessary resources and capabilities to compete in the new global environment

firm specific human capital amd optimal capital structure the authors consider the moral hazard in managers undersupplying imperfectly marketable firm specific human capital firms may cope by granting long term wage contracts that protect managers against employment termination although ex ante efficient these contracts may be ex post inefficient when managerial ability is discovered to be low precommitted firms must honor these contracts unless there is ownership transfer that permits their legal invalidation bankruptcy is one such transfer mechanism since managers anticipate the contractual consequence of bankruptcy leverage worsens moral hazard this cost provides a counterbalance to the debt tax shield and leads to an optimal capital structure copyright 1994 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

fair trade and harmonization of climate change policies in europe abstract in march 2000 the european commission presented a green paper on greenhouse gas emissions trading within europe supporting implementation of a community wide scheme in which the design and regulation of all essential elements would be harmonized at the community level the present paper analyzes economic arguments used to justify such a coordinated scenario showing these arguments to be based on misleading rhetoric about fair trade and harmonization diverse allocations of emissions allowances across member states are justified in theory in practice too no empirical evidence or model based results demonstrate that an uncoordinated european trading scheme would adversely affect competitiveness to any significant extent or substantially increase industrial relocations

immigrant job search assimilation in canada immigrant assimilation is a major issue in many countries while most of the literature studies assimilation through a human capital framework we examine the role of job search assimilation to do so we estimate an equilibrium search model of immigrants operating in the same labour market as natives where newly arrived immigrants have lower job offer arrival rates than natives but can acquire the same arrival rates according to a stochastic process using canadian panel data we find substantial differences in job offer arrival and destruction rates between natives and immigrants that are able to account for three quarters of the observed earnings gap the estimates imply that immigrants take on average 13 years to acquire the native search parameters due to immigrants facing much lower on the job offer arrival rates than natives the model predicts that earnings growth through job search is minimal for immigrants prior to their job search assimilation

us immigration policies and dynamics of cross border workforce in agriculture given the contentious debate on immigration this study develops a dynamic model to analyse the effects of stricter border and domestic enforcement and streamlining the guest worker programme on cross border migration from mexico employment and production in us labour intensive and mexican agriculture and the us and mexican wage rates the model incorporates labour leisure decisions of mexican workers and labour market dynamics and linkages the findings show stricter border and domestic controls exacerbate the labour shortage problems and reduce the us agricultural production streamlining the guest worker programme provides a steady supply of farm workers and has negligible impact on the us wage

financing the energy sector in developing countries context and overview abstract traditional business as usual financing methods will no longer be adequate to meet the unprecedented demands for capital to finance energy sector expansion in the developing countries in recognition many countries are opening up their power sectors to private investment initially through the establishment of independent power projects but in some cases through sector privatization project financing has many advantages but further sectoral reorganization including tariff reform will be needed to attract resources on the scale required especially from domestic investors in oil and gas in contrast to power private capital from the international oil companies has always played a major role in the developing countries however sharply increasing investment requirements require a growing role for external finance there should in principle be no shortage of investible funds to finance energy sector expansion in developing countries so long as host countries establish conditions which are attractive to private investors the augmented role of private finance requires a continuing if different role for the public sector in both host countries and official aid agencies

risk based assessment of the cost efficiency and the effectivity of renewable energy support schemes certificate markets versus feed in tariffs the introduction of renewable energy sources in the electricity generation mix has the potential to reduce power sector s emissions and countries dependence on imported oil climate change concerns and highly volatile oil prices have attracted governments interest and support to sustain investments in renewable energy capacity and different support policies have been implemented in many countries around the world this paper analyzes the effects of investors risk aversion on the performance of support schemes the analysis compares two policy options a feed in tariff mechanism with a certificate market system results show that while a tariff mechanism could obtain better results than a certificate market its performance is strictly dependent on regulator choices a certificate market instead permits to obtain the desired level of renewable energy market share with good cost efficiency as long as investors risk aversion is moderate moreover discounting future cash flows with higher social discount rates further benefits a certificate system making it preferable to feed in tariffs

overcoming barriers to wind project finance in australia the wind power industry in australia is expected to grow rapidly over the next decade primarily due to a forthcoming expanded national renewable energy target ret which will mandate that renewable sources provide approximately 20 of australia s electricity production by 2020 however development of new wind generation in australia has stalled as a result of several barriers to project finance the mechanism through which most wind farms have been developed historically this paper provides an overview of wind power financing in australia in light of recent political and financial trends drawing upon existing literature and a series of stakeholder interviews it identifies three primary barriers to project finance regulatory risk surrounding legislation of the ret semi privatization of electricity retailers in new south wales and limited capital availability resulting from the recent global credit crisis the paper concludes that the confluence of these barriers limits the availability of long term contracts that provide revenue certainty for pre construction wind projects while simultaneously making these contracts a necessity in order to obtain project finance in an attempt to mitigate these effects this paper identifies four alternative development strategies that can be pursued