nonrenewable resources with switching costs abstract this paper considers a firm s decision to commence or to suspend extraction of a nonrenewable resource when there are start up or shut down costs for a given level of reserves the critical price that would cause an inactive mine to be opened exceeds the price that would induce an active mine to be closed as one would expect greater switching costs cause firms to be less inclined to change status this impact can be substantial even for modest switching costs possible implications of switching costs are considered including the potential for firms to abandon mines with economically valuable remaining reserves

co firing coal with wood pellets for u s electricity generation a real options analysis abstract in contrast to eu u s electric utilities are not employing the bioenergy technology of co firing wood pellets with coal this difference in employment patterns is explored within a real options analysis roa for possible u s utilization of wood pellets considering fuel price series from 2009 to 2014 for analysis these series are divided into two sub periods based on different market conditions infancy 2009 2011 and substitution 2012 2014 roa indicates co firing wood pellets with coal is feasible considering adoption during wood pellets infancy under low discount rates and long power plant lifespans a portfolio effect of employing multiple fuels underlies this result however co firing is not currently economically feasible the different adoption decisions are likely a consequence of recent cheap and abundant u s natural gas for co fired wood pellets to be feasible government incentives and or a market increase in natural gas prices appear necessary

burning wood pellets for us electricity generation a regime switching analysis abstract applying a regime switching model under the theoretic framework of real options we inspect the optimal timing boundaries for coal and coal mixed wood pellets as two alternative fuels for a power plant in georgia united states results indicate that cofiring wood pellets with coal is generally not a commercially viable option however lower level with wood pellets

higher us crop prices trigger little area expansion so marginal land for biofuel crops is limited abstract by expanding energy biomass production on marginal lands that are not currently used for crops food prices increase and indirect climate change effects can be mitigated studies of the availability of marginal lands for dedicated bioenergy crops have focused on biophysical land traits ignoring the human role in decisions to convert marginal land to bioenergy crops recent history offers insights about farmer willingness to put non crop land into crop production the 2006 09 leap in field crop prices and the attendant 64 gain in typical profitability led to only a 2 increase in crop planted area mostly in the prairie states at this rate a doubling of expected profitability from biomass crops would expand cropland supply by only 3 2 yet targets for cellulosic ethanol production in the us energy independence and security act imply boosting us planted area by 10 or more with perennial biomass crops given landowner reluctance to expand crop area with familiar crops in the short run large scale expansion of the area in dedicated bioenergy crops will likely be difficult and costly to achieve

bioenergy crop production in the united states potential quantities land use changes and economic impacts on the agricultural sector the u s departments of agriculture and energyjointly analyzed the economic potential for and impacts of large scale bioenergy cropproduction in the united states anagricultural sector model polysys wasmodified to include three potential bioenergycrops switchgrass hybrid poplar and willow at farmgate prices of us 2 44 gj anestimated 17 million hectares of bioenergycrops annually yielding 171 million dry mg ofbiomass could potentially be produced at aprofit greater than existing agricultural usesfor the land the estimate assumes highproductivity management practices are permittedon conservation reserve program lands traditional crops prices are estimated toincrease 9 to 14 percent above baseline pricesand farm income increases annually by us 6 0billion above baseline at farmgate prices of us 1 83 gj anestimated 7 9 million hectares of bioenergycrops annually yielding 55 million dry mg ofbiomass could potentially be produced at aprofit greater than existing agricultural usesfor the land the estimate assumes managementpractices intended to achieve highenvironmental benefits on conservation reserveprogram lands traditional crops prices areestimated to increase 4 to 9 percent abovebaseline prices and farm income increasesannually by us 2 8 billion above baseline

risk neutral parameter shifts and derivatives pricing in discrete time we obtain a large class of discrete time risk neutral valuation relationships or preference free derivatives pricing models by imposing a simple restriction on the state price density process the risk neutral stock return and forward rate dynamics are obtained by changing only a location parameter which can be determined independent of the preference and true location parameters the gaussian models of rubinstein 1976 brennan 1979 and c mera 2003 and the gamma model of heston 1993 are all special cases the model provides simple relationships between expected returns and state price density parameters analogous to the diffusion case

contractual responses to the common pool prorationing of crude oil production this paper examines bargaining among firms to mitigate rent dissipation following the major oil discoveries of 1926 35 because of high bargaining costs firms chose prorationing instead of consolidation and unitization and success varied the analysis also shows that prorationing took the form it did because concession such as per well quotas were required to draw in small operations and the quotas led to predictable responses regarding rent dissipation prorationing despite its costs controlled total field production and costs conserved natural reservoir energies and lengthened field life when private agreements failed the parties successfully appealed for state enforcement since similar heterogeneities influnce regulations elsewhere in the economy detailed analysis of bargaining among firms is essential for insight into the emergence of various institutional forms 33 references 3 tables

the windy commons wind power generation is growing rapidly in the united states doubling nearly every three years since 1998 yet wind is an open access resource and past experiences with open access resources suggest that tragedies of the commons may occur while the engineering literature has focused on turbine siting within a wind farm to maximize profits and minimize interaction effects the economics literature has overlooked interaction effects between windfarms we provide a qualitative framework for measuring wake externalities and use simulation modeling to determine their magnitude we find that a turbine wake externalities and thus losses to downwind sites increase with the square of wind velocity and can be substantial b decentralized ownership across wind farms leads to overcapitalization in upwind sites and undercapitalization in downwind sites relative to sole ownership c when multiple potential patches are considered more land will be used upwind for wind power under decentralized ownership and d numerical simulations suggest that total rents are reduced under decentralized ownership by up to 12 while total power produced increases by approximately 10 under our central parameters decentralized ownership may be preferred to a sole owner depending on the value society places on clean power relative to dirty power

new insights into smile mispricing and value at risk the hyperbolic model the authors investigate a new basic model for asset pricing the hyperbolic model which allows an almost perfect statistical fit of stock return data after a detailed introduction into the theory they use secondary market data to compare the hyperbolic model to the classical black scholes model the authors study implicit volatilities the smile effect and pricing performance exploiting the full power of the hyperbolic model they construct an option value process from a statistical point of view by estimating the implicit risk neutral density function from option data finally the authors present some new value at risk calculations leading to new perspectives to cope with model risk copyright 1998 by university of chicago press

the effect of mean reversion on investment under uncertainty abstract mean reverting processes are appropriate for most real option investment models yet geometric brownian motion gbm processes are generally used for tractability hassett and metcalf j econom dyn control 19 1995 1471 1488 argue that using a gbm process is justified because mean reversion has two opposing effects it brings the investment trigger closer and also reduces the conditional volatility thereby lowering the likelihood of reaching the trigger and the overall effect on investment should be negligible for most reasonable parameter values this paper extends the hassett and metcalf model by incorporating a third factor the effect of mean reversion on systematic risk the main result is that mean reversion in general does have a significant impact on investment moreover this effect could be either positive or negative depending on various factors such as project duration cost of investing interest rate etc thus it is generally inappropriate to use the gbm process to approximate a mean reverting process

options uncertainty and sunk costs an empirical analysis of land use change abstract in a real option model of land conversion incorporating return uncertainty and sunk costs optimal conversion thresholds are significantly higher than those from expected net present value models not accounting for these factors empirical tests of conversion from agriculture to forest suggest that landowners value the option to convert when making conversion decisions higher uncertainty in returns to all potential uses and lower correlation between shocks to agricultural and forest returns decreases the likelihood of conversion estimates indicate a significant impact on conversion decisions with approximations of option values ranging from 7 to 81 of the expected value of the land asset

investment under alternative return assumptions comparing random walks and mean reversion abstract many recent theoretical papers have come under attack for modeling prices as geometric brownian motion this process can diverge over time implying that firms facing this price process can earn infinite profits we explore the significance of this attack and contrast investment under geometric brownian motion with investment assuming mean reversion while analytically more complex mean reversion in many cases is a more plausible assumption allowing for supply responses to increasing prices we show that cumulative investment is generally unaffected by the use of a mean reversion process rather than geometric brownian motion and provide an explanation for this result

the finite moment log stable process and option pricing we document a surprising pattern in s p 500 option prices when implied volatilities are graphed against a standard measure of moneyness the implied volatility smirk does not flatten out as maturity increases up to the observable horizon of two years this behavior contrasts sharply with the implications of many pricing models and with the asymptotic behavior implied by the central limit theorem clt we develop a parsimonious model which deliberately violates the clt assumptions and thus captures the observed behavior of the volatility smirk over the maturity horizon calibration exercises demonstrate its superior performance against several widely used alternatives

forecasting stock return variance toward an understanding of stochastic implied volatilities we examine the behavior of measured variances from the options market and the underlying stock market under the joint hypotheses that markets are informationally efficient and that option prices are explained by a particular asset pricing model forecasts from time series models of the stockreturn process should not have predictive content given the market forecast as embodied in option prices both in sample and out of sample tests suggest that this hypothesis can be rejected using simulations we show that biases inherent in the procedure we use to imply variances cannot explain this result thus we provide evidence inconsistent with the orthogonality restrictions of option pricing models that assume that variance risk is unpriced these results also have implicationsfor optimal variance forecast rules

on solving the multirotational timber harvesting problem with stochastic prices a linear complementarity formulation this article develops a two factor real options model of the harvesting decision over infinite rotations assuming a known stochastic price process and using a rigorous hamilton jacobi bellman methodology the harvesting problem is formulated as a linear complementarity problem that is solved numerically using a fully implicit finite difference method this approach is contrasted with the markov decision process models commonly used in the literature the model is used to estimate the value of a representative stand in ontario s boreal forest both when there is complete flexibility regarding harvesting time and when regulations dictate the harvesting date

impact of perennial energy crops income variability on the crop selection of risk averse farmers abstract the uk government policy is for the area of perennial energy crops in the uk to expand significantly farmers need to choose these crops in preference to conventional rotations for this to be achievable this paper looks at the potential level and variability of perennial energy crop incomes and the relation to incomes from conventional arable crops assuming energy crop prices are correlated to oil prices the results suggests that incomes from them are not well correlated to conventional arable crop incomes a farm scale mathematical programming model is then used to attempt to understand the affect on risk averse farmers crop selection the inclusion of risk reduces the energy crop price required for the selection of these crops however yields towards the highest of those predicted in the uk are still required to make them an optimal choice suggesting only a small area of energy crops within the uk would be expected to be chosen to be grown this must be regarded as a tentative conclusion primarily due to high sensitivity found to crop yields resulting in the proposal for further work to apply the model using spatially disaggregated data

the intensity and timing of investment the case of land the authors model the decision to replace durable capital when intensity is variable decisions of this type include land redevelopment decisions where the density of residential or commercial development is a choice variable as well as capital replacement decisions where capacity is variable the authors provide a general yet simple formation of the problem using an optimal stopping framework they characterize the value of the project the timing of investment and the intensity of development the authors show that intensity interacts in important ways with timing taxes and project values the ability to vary intensity raises hurdle rents and delays development decisions copyright 1994 by american economic association

oil field unitization contractual failure in the presence of imperfect information an empirical analysis of the impact of transaction costs on contracting shows that imperfect in formation can seriously limit the effectiveness of private contracting the case under study is the widespread failure of private crude oil producing firms to use us oil fields to reduce rent dissipation rent dissipation follows as multiple firms compete for migratory oil in common oil pools unitization is the obvious private contractual solution to rent dissipation the authors argue that despite large net gains from unitization imperfect information and information asymmetries among the negotiating parties regarding lease values prevents consensus on unit shares as a result contracts are often not completed or only fragmented units are completed 9 references 1 figure 4 tables

estimating maximum land use change potential from a regional biofuel industry abstract the maximum amount of land for growing switchgrass for ethanol is estimated for a region in the southeastern u s breakeven capacities are calculated for land in row crops hay pasture and marginal land characteristics of land categories inform potential land use change impacts as well as switchgrass profitability variable yields within and across land categories are translated into distributions of switchgrass net revenue breakeven curves are generated for a range of switchgrass prices these curves provide upper bounds for further analysis of actual switchgrass adoption in context of broader economic forces and possible policy mechanisms to minimize environmental impacts a farm gate price of 55 mg 1 is estimated for half of marginal and pasturelands to break even with switchgrass at this price only 20 of land in hay and a small fraction of row crop hectares break even half of hay and row crops hectares break even at approximately 90 mg 1 and 100 mg 1 respectively at 60 mg 1 sufficient land area can profitably produce switchgrass for ethanol to displace approximately 10 of gasoline consumed in georgia north carolina and south carolina however this price only indicates breakeven capacity implying that higher prices may be necessary to realize 10 displacement

optimal sequential plantings of corn and soybeans under price uncertainty we examine crop choice and fertilizer applications as the solution to stochastic dynamic optimization problem for an innite stream of discounted prots the ecient decision rule depends on the stochastic evolution of commodity prices fertilizer prices and the agronomic eects of rotation versus monoculture this decision rule includes an account of real option values associated with maintaining soil quality and disposition in an environment with highly uncertain future prices and irreversible past planting decisions we parameterize a baseline model for a representative acre in iowa and compare the model s predictions and prots to relatively naive shorter horizon decision rules and a eld managed with optimal fertilizer applications conditional on corn and soybeans always being rotated we also examine the

the integration of energy and agricultural markets this article addresses the evolving links between energy and agricultural markets prior to 2005 there was little correlation between energy and agricultural commodity prices in 2006 2008 with the ethanol boom in the united states there emerged a strong link between crude oil gasoline and corn prices there was little link between ethanol and corn however in late 2008 and 2009 the markets changed as ethanol production came under severe economic pressure and 2 billion out of 12 billion gallons of capacity shut down during this period ethanol became priced more on corn as the breakeven corn price helped drive the ethanol market this article explores the drivers in these markets as well as other major issues facing the corn ethanol industry in the united states such as the blend wall the article concludes with a review of prospects of a future cellulosic biofuels industry

emissions reductions or green booms general equilibrium effects of a renewable portfolio standard renewable portfolio standards rps are commonly promoted as a policy tool to reduce emissions associated with fossil generation while also stimulating development of local renewable resource endowments we develop a general equilibrium model of an rps policy that captures key features such as a fixed factor renewable endowment substitution across sectors of the economy and endogenous price responses we analytically decompose the effects of an rps into a a substitution effect b an output tax effect and c an output effect we show that an increase in the rps can either deliver large resource booms or large emissions savings but not both our framework can translate different renewable resource endowments and pre existing standards across states into economic and environmental impacts to inform current renewable energy and climate policies

production and spatial distribution of switchgrass and miscanthus in the united states under uncertainty and sunk cost abstract the u s cellulosic biofuel mandate has not been enforced in recent years uncertainty surrounding the enforcement of the mandate in addition to high production and harvest cost have contributed to a delay in the widespread planting of bioenergy crops such as switchgrass and miscanthus previous literature has shown that under uncertainty and sunk cost an investment threshold is further increased due to the value associated from holding the investment option in this paper we extend the previous literature by applying a real option switching model to bioenergy crop production first we calculate the county level break even price which triggers a switching away from traditional field crops corn soybeans and wheat to bioenergy crops under various scenarios differing by commodity prices production cost and biomass price expectations we show that the resulting break even prices at the county level can be substantially higher than previously estimated due to the inclusion of the option value in a second step we identify counties that are most likely to grow switchgrass or miscanthus by simulating a stochastic biomass price over time our results highlight two issues first switchgrass or miscanthus are not grown in the midwest under any scenario under low agricultural residue removal rates biomass crops are mostly grown in the southeast second under the assumption of a high removal rates bioenergy crops are not grown anywhere in the u s since the cellulosic biofuel mandate can be covered by agricultural residues

species preservation and biodiversity value a real options approach abstract we evaluate biodiversity in a real options framework when the resources in use are substitutable we examine optimal conservation decisions given that a biodiversity loss is irreversible and that future use values are uncertain while species substitutability has been shown to reduce the value of diversity we show that the flexibility associated with substitutability is a source of value marginal species value is decreasing in the number of species but rising and convex in the value of the marginal species as we show in the two species homogenous model increased volatility raises biodiversity value and a positive correlation between species values both reduces the value of the pool of species and the value of biodiversity the role played by the correlation between the value of a species and the value of other species is reminiscent of the beta of a financial asset just like an asset with a negative beta derives additional value by providing insurance against fluctuations in the market portfolio a species whose value tends to move in the opposite direction as the species in use derives additional value from its higher probability to be available for substitution if the value of the species in use diminishes

switching to perennial energy crops under uncertainty and costly reversibility we study a farmer s decision to convert traditional cropland into land for growing dedicated energy crops taking into account sunk conversion costs and uncertainties in crop returns the optimal decision rules differ significantly from the expected net present value rule which ignores uncertainties and from real options models that allow only one way conversion into energy crops these models also predict drastically different patterns of land conversions into and out of energy crops over time using corn soybean rotation and switchgrass as examples we show that the model predictions are sensitive to assumptions about stochastic processes of the returns government policies might have unintended consequences subsidizing conversion costs into switchgrass may not much affect proportions of land in switchgrass in the long run

towards a semigroup pricing theory in an arbitrage free economy there will always exist a set of linear operators which map future contingent dividends of securities into their current prices it happens that such operators will also form an evolution semigroup as a consequence of intertemporal analysis of the no arbitrage restriction this paper summarizes some of the major implications of the semigroup properties but avoids almost all of the technical discussion which underlies them instead several practical examples are presented some wellknown continuous time results are replicated by this alternative method and certain new developments are explored it is well known that in an arbitrage free economy there exists a nonnegative linear operator mapping dividend streams into current prices 1 what is less well known is that these operators as a consequence of intertemporal no arbitrage must additionally possess a semigroup property this paper is an overview of work in progress which deals with the semigroup features but which is contained in rather longer and more complicated papers 2 here i shall attempt to make the main results and prospective results in some cases accessible to a broader financial economics readership at first blush the terminology itself is intimidating we shall be dealing with the apparently difficult notions of 1 linear operators 2 infinitesimal generators and 3 evolution semigroups these terms become less daunting when it is realized that almost everyone has encountered a simple example of each via the discounting of future payments consider a world of certainty where the discount function between dates t and t is given as tqt that is if the current time is t and a future payment is to be received at time t in the amount a then the present value of the future payment would be given as vt tq a we see that tq may be considered an operator since it maps future payments into current values it is linear since two contemporaneous payments may be added together first and then discounted or discounted individually and added with the same result and finally it is nonnegative since no positive future payment can ever have a present value of less than zero thus the certainty discount function is an instance of a nonnegative linear operator the infinitesimal generator may be thought of as the time derivative of the operator in our certainty case the rate of change of the discount function in other words we

effects of corn stover year to year supply variability and market structure on biomass utilization and cost the availability of corn stover can vary considerably from year to year in a region due to annual changes in yield and area planted with corn such variations interacting with biomass market structures can affect biomass cost and utilization rate this study first characterizes year to year variations in corn stover supply for the us in general and for selected major us corn producing counties in particular there have been 20 30 year to year variations in stover supply in the us since 1975 game theoretic analysis is then applied to examining corn stover utilization rate and production cost in three market structures the analysis reveals that a free market structure will take the form of oligopoly oligopsony where large stover supply variations will expose both biorefineries and farmers to significant price volatility price equilibrium will shift significantly from year to year of the three market structures analysed the derisked supply market structure will be most favorable to biorefineries and farmers under this structure biorefineries will maintain a stover supply region that is based on derisked lower than average yield density to buffer for the supply uncertainty associated with annual variations this market structure results in significantly less volatility in biomass cost while on average only 63 of collectable stover will be used for biofuel production our findings suggest that year to year variation in corn stover availability will increase feedstock cost and reduce its potential for biofuel production

invisible parameters in option prices this paper characterizes contingent claim formulas that are independent of parameters governing the probability distribution of asset returns while these parameters may affect stock bond and option values they are invisible because they do not appear in the optiqn formulas for example the black scholes 1973 formula is independent of the mean of the stock return this paper presents a new formula based on the log negative binomial distribution in analogy with cox ross and rubinstein s 1979 log binomial formula the log negative binomial option price does not depend on the jump probability this paper also presents a new formula based on the log gamma distribution in this formula the option price does not depend on the scale of the stock return but does depend on the mean of the stock return this paper extends the log gamma formula to continuous time by defining a gamma process the gamma process is a jump process with independent increments that generalizes the wiener process unlike the poisson process the gamma process can instantaneously jump to a continuum of values hence it is fundamentally unhedgeable if the gamma process jumps upward then stock returns are positively skewed and if the gamma process jumps downward then stock returns are negatively skewed the gamma process has one more parameter than a wiener process this parameter controls the jump intensity and skewness of the process the skewness of the log gamma process generates strike biases in options in contrast to the results of diffusion models these biases increase for short maturity options thus the log gamma model produces a parsimonious option pricing formula that is consistent with empirical biases in the black scholes formula

contracting problems and regulation the case of the fishery the inefficiencies of common property fisheries are of continuing concern to economists the early work by scott gordon 1954 and anthony scott 1955 outlined the problem and later studies by james crutchfield and giulio pontecorvo 1969 and frederick bell 1972 provided empirical estimates of the losses that result those studies were followed by the dynamic models of colin clark 1976 and james quirk and vernon smith 1970 of optimal harvest rates and the use of corrective taxes or quotas to achieve them but in spite of a large and growing literature and the persuasiveness of the outlined efficiency criteria most fisheries retain common property aspects with overcapitalization and excessive labor input why those conditions persist and the failure of the regulatory response to them are the issues addressed in this paper we examine a number of fisheries but focus on the texas shrimp industry which is one of the nation s most valuable fisheries for a single species and which shares the common property characteristics observed elsewhere it is considered overcapitalized and catch per unit of effort is falling 2 examination of the fishery reveals the many margins along which rent dissipation occurs and the nature of the regulations necessary for controlling fishing effort to avoid those losses the regulatory environment in texas is complicated by conflict within the fishery between inshore and offshore fishermen the latter assert that bay shrimping reduces the number of shrimp that successfully migrate to the gulf the inshore fishery is highlighted by another issue the recent resettlement of some 30 45 000 vietnamese refugees including many fishermen along the texas coast marine advisory service paul starr their entry has been met by hostility and violence from existing shrimpers who recognize that they are in an environment characterized by the absence of property rights bay shrimpers have lobbied the texas legislature for broad limits on new entrants yet ironically the sale of additional boats by individual shrimpers to the vietnamese has facilitated entry of the refugees into the fishery regulations in the texas shrimp and other fisheries are incomplete leaving many options for rent dissipation uncontrolled because of high contracting costs among fishermen and political factors that mold government actions contracting costs are high among heterogeneous fishermen who vary principally with regard to fishing skill 3 montana state university and texas a m university respectively we benefitted from comments by terry anderson raymond c battalio gardner brown oscar burt micha gisser wade griffin john r moroney anthony d scott peter temin and participants in workshops at texas a m university and the university of washington research assistance was provided by scott barnhart and phil mizzi funding was provided by sea grant texas a m university throughout this paper we use the terms common property and open access interchangeably here the terms describe a situation where no property rights group or individual exist s for the resource 2catch per unit of effort in the inshore texas gulf and federal gulf waters is presented for 1963 77 by w l griffin c g tydlacka and w e grant they show catch per unit of effort generally falling in inshore and offshore waters while catch per unit of effort fluctuates from year to year it falls from approximately 360 kg shrimp per unit of effort to 220 kg from 1963 to 1977 the common property nature of the fishery is reflected in the following statistics since 1975 the number of vessels has grown by 23 percent nelson swartz for fish houses the record of entry is similar between 1970 a d 1977 the number of firms grew from 259 to 287 though during that period many left the industry as others entered the number of fish houses was calculated from license data supplied by the texas parks and wildlife department the record of entry by fish houses suggests that monopsony as discussed by colin clark and gordon munro is absent in the fishery 3there may be minor differences in labor leisure choices and capital but our statistical evidence and discussions with fishermen indicate that catch variations are largely due to skill government regulations in the texas bays restrict capital and our empirical evidence shows boats to be relatively homogeneous

nonparametric tests of alternative option pricing models using all reported trades and quotes on the 30 most active cboe option classes from august 23 1976 through august 31 1978

corn ethanol plant investment a real options case study the objective of this article is to describe an investment decision using net present value and real options a case study describes the data and the corn ethanol industry so students can study a cooperative s decision of whether or not to invest in a new corn ethanol plant in 2015 nebraska an extensive set of information accompanies this case including spreadsheets with data computer software code lesson plans for teaching real options and net present value and an extensive teaching note

optimal fishery management with regime shifts an assessment of harvesting strategies this paper compares outcomes from informed and uninformed harvesting strategies for a fish stock with switching dynamics where the probability of switching is influenced by climate using data on sea surface temperature anomalies the impacts of climate on the conservation and the welfare that can be extracted from the stock are investigated results indicate that an informed management policy leads to stock biomass and resource rents that are up to 2 7 and 2 times higher respectively than under an uninformed policy also the fishery is open 54 longer under the informed policy the magnitude of these effects depends on the choice of the discount rate indicating that when the future is highly discounted gains from the informed policy dissipate