discounting and divergence of opinion the objective of this paper is to adopt a general equilibrium model and determine the socially efficient discount factor risk free rate and discount rate when there are heterogeneous anticipations about the growth of the economy as well as heterogeneous time preference rates among others we tackle the following questions is the socially efficient discount factor an arithmetic average of the individual subjectively anticipated discount factors more generally can the arrow debreu prices the risk free rates the subjectively expected socially efficient discount factors and discount rates be obtained as an average of the individual subjectively anticipated ones can beliefs dispersion be analyzed as a sort of additional risk or uncertainty leading to possibly lower discount rates is it socially efficient when diversity of opinion is taken into account to reduce the discount rate per year for more distant horizons if so what is the trajectory of the decline

energy substitution when model selection depends on the focus abstract in contrast to conventional model selection criteria the focused information criterion fic allows for the purpose specific choice of model specifications this accommodates the idea that one kind of model might be highly appropriate for inferences on a particular focus parameter but not for another ever since its development the fic has been increasingly applied in the realm of statistics but this concept appears to be virtually unknown in the literature on energy and production economics using the classical example of the translog cost function and production data for 35 u s industry sectors 1960 2005 this paper provides for an empirical illustration of the fic and demonstrates its usefulness in selecting production models thereby focusing on the ease of substitution between energy and capital versus energy and labor

gamma discounting and expected net future value recent research suggests that the long term future should be discounted with a declining discount rate one such line of research exemplified by weitzman gamma discounting amer econ rev 91 2001 261 271 shows that the certainty equivalent discount rate is declining when future capital productivity is uncertain however in a recent paper gollier maximising the expected net future value as an alternative strategy to gamma discounting finan res lett 1 2004 85 89 puts forward a puzzle that casts doubt on the validity of this conclusion he asserts that using expected net future value rather than conventional expected net present value implies that the certainty equivalent discount rate increases over time this paper resolves the apparent puzzle by encompassing the models of gollier maximising the expected net future value as an alternative strategy to gamma discounting finan res lett 1 2004 85 89 and weitzman gamma discounting amer econ rev 91 2001 261 271 in fact gollier proves that as the evaluation date moves further into the future the discount rate at a given point in time will increase however given a particular evaluation date the schedule of discount rates is declining

analyzing the indirect production function for u s manufacturing in recent years there has been considerable research conducted in applied production economics to estimate the firm s structure of technology and its production characteristics the main concept used in this research is the duality principle relating production and cost or profit together with the use of flexible form econometric specifications for estimating production technologies under the assumption of cost minimization or proft maximization duality implies that for any production function there exists a cost or profit function that provides an equivalent description of the technology what is less well known however is that the firm s technology can be equally well described by the indirect production function a production analog of the indirect utility function in consumer theory 5 8 9 the indirect production function is based on the firm s output maximization subject to a budget constraint on input costs of course it is evident enough that a firm choosing inputs to maximize output for a given input cost produces that output at the minimum cost by implication the indirect production and cost functions are equivalent ways of characterizing the firm s technology and as will be seen there exists a unique correspondence between the two functions in empirical application however the choice between the two functions hinges on the exogeneity or endogeneity of output for the indirect production function the level of output is an endogenous variable in the case of the cost function on the other hand output is exogenously given in most situations it is the indirect production function not the cost function that is more compatible with observed behavior of firms and industries while numerous studies have been conducted recently to estimate the cost or profit function in a variety of firms and industries 1 2 3 6 no attempts have been made to employ the indirect production function as a working tool in applied production analysis this paper attempts to provide empirical evidence from analyzing the indirect production function within the context of an application of the duality principle using the well known data set utilized by berndt and wood 3 and berndt and khaled 2 it reexamines the production structure of u s manufacturing based on a translog specification of the indirect production function for the underlying technology an important question is how the choice of a model the indirect production or cost function

an analysis of technological change factor substitution and economies of scale in manufacturing industries in india the biases of technological change factor substitution and economies of scale in four major manufacturing industries viz cement electricity and gas cotton textiles and iron and steel in india are examined the translog cost functions are estimated using annual time series data covering the period 1960 61 to 1982 83 the study reveals that technical change has been biased towards the use of labour and materials and against the use of capital and energy in electricity and gas industries in cotton textiles the technological change has shown the opposity biases significant economies of sclae exist in the production of electricity and gas enough evidence of substitution possibilities among factors of production in all the four industries was also found

material substitution and path dependence empirical evidence on the substitution of copper for aluminum abstract adopting an evolutionary perspective this paper argues that path dependence plays a major role in material use and substitution such that it might delay or even prevent substitution despite the occurrence of significant relative price changes after elucidating the importance of material substitution from an ecological economic point of view and after explaining the meaning of path dependence from an evolutionary perspective the copper aluminum material substitution process is described for the main electrical conductor producing countries the us germany and japan this example makes clear that irrespective of attractive relative prices in favor of aluminum it could neither achieve a predominant market position nor is it possible to identify an explicit relation between relative price changes and relative material use in a qualitative analysis applying a distributed lag model for data on copper and aluminum for electrical applications the significance of relative prices and path dependence is examined for a 51 year time period for the us japan and germany the results indicate that path dependence and relative prices especially in the long run are both important factors influencing the copper aluminum substitution process the major conclusions read that substitution processes cannot be predicted by relative price movements alone and that price instruments to encourage material substitution should not be overestimated instead in the design of resource policies it should be considered that material substitution is an evolutionary and path dependent process which requires learning as well as time capital research and experience

is neoclassical microeconomics formally valid an approach based on an analogy with equilibrium thermodynamics abstract the relation between thermodynamics and economics is a paramount issue in ecological economics two different levels can be distinguished when discussing it formal and substantive at the formal level a mathematical framework is used to describe both thermodynamic and economic systems at the substantive level thermodynamic laws are applied to economic processes in ecological economics there is a widespread claim that neoclassical economics has the same mathematical formulation as classical mechanics and is therefore fundamentally flawed because 1 utility does not obey a conservation law as energy does 2 an equilibrium theory cannot be used to study irreversible processes here we show that neoclassical economics is based on a wrong formulation of classical mechanics being in fact formally analogous to equilibrium thermodynamics the similarity between both formalisms namely that they are both cases of constrained optimisation is easily perceived when thermodynamics is looked upon using the tisza callen axiomatisation in this paper we take the formal analogy between equilibrium thermodynamics and economic systems far enough to answer the formal criticisms proving that the formalism of neoclassical economics has irreversibility embedded in it however the formal similarity between equilibrium thermodynamics and neoclassical microeconomics does not mean that economic models are in accordance with mass energy and entropy balance equations in fact neoclassical theory suffers from flaws in the substantive integration with thermodynamic laws as has already been fully demonstrated by valuable work done by ecological economists in this field

the evolution of time preference with aggregate uncertainty we examine the evolutionary foundations of intertemporal preferences when all the risk affecting survival and reproduction is idiosyncratic evolution selects for agents who maximize the discounted sum of expected utility discounting at the sum of the population growth rate and the mortality rate aggregate uncertainty concerning survival rates leads to discount rates that exceed the sum of population growth rate and death rate and can push agents away from exponential discounting

motivations for aid to developing countries abstract this paper attempts to identify the underlying principles of aid allocation and particularly the balance of motivations as between the needs of recipient countries and the interests of donor countries two alternative models are fitted by cross country regressions to bilateral and multilateral aid flows to some 80 developing countries in 1969 1970 and 1978 1980 the first recipient need model assumes that all aid is given to compensate for shortfalls in domestic resources this model provides a reasonable explanation for the distribution of multilateral aid but it is clearly not applicable for bilateral aid flows the second donor interest model assumes that all aid serves only donor interests defined to cover political security investment and trade interests this model gives generally good explanations of bilateral aid but is a poor fit for multilateral aid the relative importance of the various donor interests differs sharply among donors the paper ends with an analysis of the shift in the balance of aid over the 1970s towards the recipient need element and with a reference to the sharp change in policy in the 1980s towards increasing emphasis on donor interest aid

the elasticity of substitution in india s manufacturing sector abstract using cross section data and the translog cost function this paper examines the substitution possibilities between capital and materials and labor and materials since raw materials might be used to overcome the bottlenecks caused by shortages of physical capital and skilled labor three significant conclusions are a since materials are substitutable for both capital and labor to a considerable extent capital and skilled labor may not be a binding constraint on growth agricultural materials expansion may substitute for these inputs and lead to expansion in the industrial sector b fixed proportion models are not warranted in india without modification and c separability tests showed that materials must be included in the production function

distributional preferences and the incidence of costs and benefits in climate change policy we explore the relationship between willingness to pay wtp for climate change mitigation and distributional preferences by which we mean individuals opinions about who should be responsible for climate change prevention and whether the share of climate change impacts borne by the poor is a cause for concern we use 1 770 responses to an online stated preference survey the domestic costs in our survey s policy choice scenarios are expressed as a set of randomized shares across four different payment vehicles and the international cost shares are randomized across four groups of countries we also elicit respondents perceptions of the likely regressivity of climate change impacts under a policy of business as usual wtp is higher when larger cost shares are borne by parties deemed to bear a greater responsibility for mitigation and when respondents believe and care that the impacts of climate change may be borne disproportionately by the world s poor that wtp for an environmental policy depends on the distributional consequences of the policy is an unsettling result efficiency assessments are typically assumed to be separate from equity considerations in most benefit cost analyses

are bilateral and multilateral aid for trade complementary using the first comprehensive estimates of ad valorem tariff equivalent bilateral trade costs spanning the time period 2002 10 we examine whether the aid for trade aft inflows reduce bilateral trade costs facing aid recipients if so we ask whether the trade costs reduction effects of aft from bilateral and multilateral sources are complementary by showing the extent to which the observed trade cost reduction effects of aft from bilateral multilateral sources correlate with the magnitudes of aft disbursements from multilateral bilateral sources we present plausible explanation for the cross country variations in the extent to which aft promotes trade flows our findings have thus important policy implications for shaping future discourses on the coordination of disbursements for enhancing the effectiveness of aft

the hard challenge of aid coordination aid coordination is a constant theme of discussion among national and international aid agencies in their search for more effectiveness and efficiency in delivering development assistance this paper seeks to clarify some of the arguments currently made in support of aid coordination and to precise unavoidable trade offs born of the existence of political costs it is anchored in the available literature on aid delivery while focusing on the implementation problems of aid coordination among donor countries in particular it deals with a the issue of consistently and collectively handling possible governance failures in recipient countries and b the impact of heterogeneity of donor countries on the effectiveness of aid coordination

discounting under uncertainty disentangling the weitzman and the gollier effect the uncertainty of future economic development affects the term structure of discount rates and thus the intertemporal weights that are to be used in cost benefit analysis the u k and france have recently adopted a falling term structure to incorporate uncertainty and the u s is considering a similar step a series of publications discusses the following concern a seemingly analogous argument used to justify falling discount rates can also justify increasing discount rates we show that increasing and decreasing discount rates mean different things can coexist are created by different channels through which risk affects evaluation and have the same qualitative effect of making long term payoffs more attractive

proliferation and fragmentation transactions costs and the value of aid abstract the problem of the proliferation of the number of aid donors and aid channels continues to worsen it is widely and plausibly believed that this significantly reduces the value of aid by increasing direct and indirect transactions costs we contribute to the existing literature by a categorising the apparent adverse effects of proliferation b producing a reliable and fair indicator of the relative degree to which the main bilateral donors proliferate or concentrate their aid c giving some explanation of why some donors proliferate more than others d constructing a reliable measure of the extent to which recipients suffer from the problem of fragmentation in the sources of their aid and e demonstrating that the worst proliferators among the aid donors are especially likely to be suppliers of aid to recipients suffering most from fragmentation there are significant implications for aid policy

policy reform and labour demand in branches of sri lankan manufacturing industry many policy reforms in developing countries aim to remove factor market distortions whether such reforms reduce unemployment depends partly on the substitution possibilities between labour and other factors of production this paper examines labour demand in seven branches of sri lankan manufacturing industry using data on 4 digit industrial categories over the 1990 to 1997 period the box cox transformation is used to allow for flexible and data dependent elasticities the elasticity of capital labour substitution varies widely across the branches of industry and is usually variable rather than constant the average long run own wage elasticity of labour demand for the manufacturing sector is estimated as 0 80 so factor price policy should have an important effect on labour demand in this setting

constrained output maximization and us agriculture this paper presents a framework for estimating an indirect production function and then applies it to aggregate us agriculture issues addressed include tests of standard hypotheses about the underlying technology homotheticity neutral technical change etc as well as examination of consistency in aggregation and the effects of changes in the level of aggregate expenditure on farm output since there already exist several studies empirically describing agricultural production technologies with indirect objective functions one might fairly ask whether this paper really breaks any new ground we feel that it does one reason is that existing studies e g binswanger 1974 lopez 1980 ball and chambers 1982 ray 1982 and weaver 1983 all rely on either profit or cost functions to date there appears to be only one study using an indirect production appelbaum 1979 and it is not in agriculture this seems unfortunate because there are many instances in agriculture for which an indirect productio

climate policy and the social cost of power generation impacts of the swedish national emissions target the purpose of this paper is to discuss how the design of climate policy in a small open economy may affect the internalization of carbon related external costs and ultimately the social choice between different power generation technologies empirically we focus on the swedish case and analyze three climate policy regimes out of which two represent different national goal formulations and thus compliance strategies the results show that the social choice between power generation technologies in sweden will be significantly influenced by the choice of climate policy regime most notably if sweden would abandon its present national target for carbon dioxide emissions and instead make full use of the country s participation in international emissions trading natural gas fired power would replace onshore wind power as the power generation source with the lowest social cost

facing the truth about separability nothing works without energy abstract separability is a pivotal theoretical and empirical concept in production theory while the standard definition of separability is primarily motivated by the desire to conceptualize production decisions as a sequential process the principal purpose of an appropriate concept of separability in empirical work is to justify the omission of variables for which data are either of poor quality or unavailable this paper demonstrates that this empirical concept needs to be more restrictive than the classical notion of separability is therefore we suggest a novel definition of separability based on cross price elasticities that has clear empirical content because there is ample empirical reason to even doubt the assumption that energy is separable from all other production factors in the relatively mild form of classical separability energy seems to be an indispensable production factor under separability aspects

non neutral technical change capital white collar and blue collar labor some empirical results abstract the empirical analysis of recent quarterly data for west german industries indicates that technical change is biased in favor of white collar labor and equipment while it is biased against blue collar labor

jevons paradox revisited the evidence for backfire from improved energy efficiency beginning with william stanley jevons in 1865 a number of authors have claimed that economically justified energy efficiency improvements will increase rather than reduce energy consumption jevons paradox is extremely difficult to test empirically but could have profound implications for energy and climate policy this paper summarises and critiques the arguments and evidence that have been cited in support of jevons paradox focusing in particular on the work of len brookes and harry saunders it identifies some empirical and theoretical weaknesses in these arguments highlights the questions they raise for economic orthodoxy and points to some interesting parallels between these arguments and those used by the biophysical school of ecological economics while the evidence in favour of jevons paradox is far from conclusive it does suggest that economy wide rebound effects are larger than is conventionally assumed and that energy plays a more important role in driving productivity improvements and economic growth than is conventionally assumed

why the far distant future should be discounted at its lowest possible rate abstract a critical feature of the distant future is currently unresolvable uncertainty about what will then be the appropriate rate of return on capital to use for discounting this paper shows that there is a well defined sense in which the lowest possible interest rate should be used for discounting the far distant future part of any investment project some implications are discussed for evaluating long term environmental projects or activities like measures to mitigate the possible effects of global climate change

evaluating aid for trade a survey of recent studies the demand for accountability in aid for trade is increasing but monitoring has focused on case studies and impressionistic narratives the paper reviews recent evidence from a wide range of studies recognizing that a multiplicity of approaches is needed to learn what works and what does not the review concludes that there is some support for the emphasis on reducing trade costs through investments in hard infrastructure like ports and roads and soft infrastructure like customs but failure to implement complementary reform especially the introduction of competition in transport services may erode the benefits of these investments direct support to exporters does seem to lead to diversification across products and destinations but it is not yet clear that these benefits are durable in general it is difficult to rely on cross country studies to direct aid for trade more rigorous impact evaluation is an underutilized alternative but situations of clinical interventions in trade are rare and adverse incentives because of agency problems and costs because of the small size of project are a hurdle in implementation

the stern review a deconstruction using a simple model designed for transparency but nonetheless calibrated to support the much quoted damage estimates of the stern review of the economics of climate change we demonstrate significant sensitivity of those results to assumptions about the pure rate of time preference the time horizon and the rates of risk and equity aversion used to compute certainty and equity equivalent annuities most importantly we demonstrate enormous sensitivity to presumed constant regional vulnerability and underlying assumptions about adaptive capacity manipulation of any of these parameters one at a time across reasonable ranges can diminish damage estimates by as much as 84 or in the case of extending the time horizon with the review s low discount rate increase damage estimates by 900 we also confirm the usual result that limiting atmospheric concentrations to specific benchmarks above 400 ppm cannot eliminate all damages nonetheless we applaud the stern review author team for reconfirming that the climate problem can be approached productively as an economic problem whose solutions can be explored with the tools of decision analysis 2008 elsevier ltd all rights reserved

on discounting and voting in a simple growth model abstract in dynamic resource allocation models the non existence of voting equilibria is a generic phenomenon due to the multi dimensionality of the choice space even if agents are heterogeneous only in their discount factors nevertheless at each point in time there may exist a median voter whose preferred instantaneous consumption rate is supported by a majority of agents based on this observation we propose an institutional setup intertemporal majority voting in a ramsey type growth model with common consumption and heterogeneous agents and show that it provides a microfoundation of the choice of the optimal consumption stream of the median agent while the corresponding intertemporal consumption stream is in general not a condorcet winner among all feasible paths its induced instantaneous consumption rates receive a majority at each point in time in the proposed intertemporal majority voting procedure we also provide a characterization of stationary voting equilibria in the case where agents may differ not only in their time preferences but also in their felicity functions

an econometric estimation of hicksian and marshallian elasticities in indian manufacturing the knowledge of substitution possibilities between different factors of production is essential in evaluating the impact of public policies on productivity employment industrial growth and factor intensity since the advent of flexible functional forms in the early 1970s a large number of studies have estimated the ease of factor substitution however to date most of the empirical evidence on factor substitution is based on a cost function a drawback with the cost function

aid policies and growth the authors of this paper use a new database on foreign aid to examine the relationships among foreign aid economic policies and growth of per capita gdp in panel growth regressions for 56 developing countries and 6 four year periods 1970 93 they find that the policies that have a great effect on growth are those related to fiscal surplus inflation and trade openness they construct an index for those three policies and have that index interact with foreign aid they have instruments for both aid and aid interacting with policies they find that aid has a positive impact on growth in developing countries with good fiscal monetary and trade policies in the presence of poor policies aid has no positive effect on growth this result is robust in a variety of specifications which include or exclude middle income countries include or exclude outliers and treat policies as exogenous or endogenous they examine the determinants of policy and find no evidence that aid has systematically affected policies either for good or for ill they estimate an aid allocation equation and show that any tendency for aid to reward good policies has been overwhelmed by donors pursuit of their own strategic interests in a counterfactual they reallocate aid reduce the role of donor interests and increasing the importance of policy such a reallocation would have a large positive effect on developing countries growth rates

a review of the stern review on the economics of climate change the stern review calls for immediate decisive action to stabilize greenhouse gases because the benefits of strong early action on climate change outweighs the costs the economic analysis supporting this conclusion consists mostly of two basic strands the first strand is a formal aggregative model that relies for its conclusions primari ly upon imposing a very low discount rate concerning this discount rate aspect i am skeptical of the review s formal analysis but this essay points out that we are actual ly a lot less sure about what interest rate should be used for discounting climate change than is commonly acknowledged the review s second basic strand is a more intuitive argument that it might be very important to avoid possibly large uncertain ties that are difficult to quantify concerning this uncertainty aspect i argue that it might be recast into sound analytical reasoning that might justify some of the review s conclusions the basic issue here is that spending money to slow global warming should perhaps not be conceptualized primarily as being about consump tion smoothing as much as being about how much insurance to buy to offset the small change of a ruinous catastrophe that is difficult to compensate by ordinary savings

between ostrom and nordhaus the research landscape of sustainability economics abstract we survey the emerging research area of sustainability economics through a quantitative full text analysis of peer reviewed journal publications from 1987 to 2013 to identify relevant contributions we draw on existing definitions of sustainability economics for a keyword based identification strategy a combined focus on a the human nature relationship b the long term uncertain future c normative orientation towards sustainability and d economic analysis our analysis of a random subsample of 343 relevant papers reveals that i sustainability economics is a rapidly developing research area ii while theoretical contributions shaped the area in earlier years applied work now constitutes the largest share of contributions iii the research landscape can be clustered into eleven research clusters these range from participatory governance of social ecological systems associated with the work of elinor ostrom to questions of intertemporal allocation and distribution applied to climate economics associated with the work of william nordhaus iv the research area is broad in scope and heterogeneous and there is relatively little interaction between important clusters v relevant contributions are published in more than 100 journals ten journals publish half of all contributions led by ecological economics and 40 appear in non economics journals underscoring the importance of interdisciplinary dialogue

declining discount rates and the fisher effect inflated past discounted future uncertain and persistent real interest rates underpin one argument for using a declining term structure of social discount rates in the expected net present value enpv framework despite being controversial this approach has influenced both the inter agency working group on cost benefit analysis and the uk government s guidelines on discounting we first clarify the theoretical basis of the enpv approach then rather than following previous work which used a single series of u s treasury bond returns we treat nominal interest rates and inflation as co integrated series and estimate the empirical term structure of discount rates via the fisher effect this nests previous empirical models and is more flexible it also addresses an irregularity in previous work which used data on nominal interest rates until 1950 and real interest rates thereafter as we show the real and nominal data have very different time series properties this paper therefore provides a robustness check on previous discounting advice and updated methodological guidance at a time when governments around the world are reviewing their guidelines on social discounting the policy implications are discussed in the context of the social cost of carbon nuclear decommissioning and public health

empirical assessment of energy price policies the case for cross price elasticities abstract evaluations of energy price policies are necessarily based on measures of the substitution of energy and non energy inputs facing a variety of substitution elasticities the central question arises which measure would be appropriate apparently for a long time this question has not been at issue allen s elasticities of substitution aes have been the most used measures in applied production analysis this paper s main contribution is an instructive survey of the origin of substitution measures and of the trinity of empirical substitution elasticities aes cross price elasticities and the morishima elasticities of substitution mes with particular emphasis on their interpretations and the perspectives that will be captured by these measures this survey clarifies why classical cross price elasticities are to be preferred for many practical purposes berndt and wood s rev econom stat 57 1975 259 frequently applied data set of us manufacturing is used to illustrate why assessments of energy price policies would be better based on cross price elasticities like the energy price elasticity of capital rather than on aes or mes

wide range estimation of various substitution elasticities for ces production functions at the sectoral level abstract this paper provides a broad range of various substitution elasticity values for sectoral nested constant elasticity of substitution ces production functions estimated through panel data techniques and using the world input output database wiod as the main data source although the related empirical literature has been growing over the recent years there is still no single study focused on a large scale estimation of various both product and industry specific elasticities with the use of an internally consistent database and a common methodology for all the production function nests this paper constitutes an attempt to fill this gap the obtained estimates may subsequently be used by computable general equilibrium cge modellers in their applied research covering fiscal labour market trade energy or environmental topics significant heterogeneity in the estimated elasticity values is observed between various industries products as well as between various nests of the production function this constitutes a strong argument against the arbitrary use of leontief and or cobb douglas specifications in multi sector cge models

how certain are we about the certainty equivalent long term social discount rate theoretical arguments for using a term structure of social discount rates sdr that declines with the time horizon have influenced government guidelines in the us and europe the certainty equivalent discount rate that often underpins this guidance embodies uncertainty in the primitives of the sdr such as growth for distant time horizons the probability distributions of these primitives are ambiguous and the certainty equivalent itself is uncertain yet if a limited set of characteristics of the unknown probability distributions can be agreed upon sharp upper and lower bounds can be defined for the certainty equivalent sdr unfortunately even with considerable agreement on these features these bounds are widely spread for horizons beyond 75 years so while estimates of the present value of intergenerational impacts including the social cost of carbon can be bounded in the presence of this ambiguity they typically remain so imprecise as to provide little practical guidance

the emergence of a regional financial architecture in asia this paper provides an assessment of monetary and financial cooperation in asia since the regional financial crisis of 1997 98 with a view to determining whether the emerging regional financial architecture in asia is compatible with the global financial architecture and what are the prospects for possible economic and monetary union monetary and financial cooperation has focused on four architectural pillars economic policy surveillance crisis prevention liquidity support and bond market development which can be consistent with the global architecture however progress toward full integration is likely to be gradual and experimental given the lack of strong regional institutions regional economic disparities and the need to build political commitment to such a goal

prioritarianism and climate change prioritarianism is the ethical view that gives greater weight to well being changes affecting individuals at lower well being levels this view is influential both in moral philosophy and in theoretical work on social choice where it is captured by a social welfare function swf summing a concave transformation of individual well being numbers however prioritarianism has largely been ignored by scholarship on climate change this article compares utilitarianism and prioritarianism as frameworks for evaluating climate policy it reviews the distinctive normative choices that are required for the prioritarian approach specifying a ratio scale for well being if the prioritarian swf takes the standard atkinson form determining the degree of concavity of the transformation function i e the degree of social inequality aversion and choosing between ex ante and ex post prioritarianism under conditions of risk the article also sketches some of salient implications of a prioritarian swf for climate policy with respect to the social cost of carbon the social discount rate optimal mitigation and the dismal theorem finally it discusses the issue of variable population

the behavioural economics of climate change this paper attempts to bring some central insights from behavioural economics into the economics of climate change in particular it discusses i implications of prospect theory the equity premium puzzle and time inconsistent preferences in the choice of discount rate used in climate change cost assessments and ii the implications of various kinds of social preferences for the outcome of climate negotiations several reasons are presented for why it appears advisable to choose a substantially lower social discount rate than the average return on investments it also seems likely that taking social preferences into account increases the possibilities of obtaining international agreements compared to the standard model however there are also effects going in the opposite direction and the importance of sanctions is emphasized

numerical analysis of non constant pure rate of time preference a model of climate policy abstract when current decisions affect welfare in the far distant future as with climate change the use of a declining pure rate of time preference prtp provides potentially important modeling flexibility the difficulty of analyzing models with non constant prtp limits their application we describe and provide software available online to implement an algorithm to numerically obtain a markov perfect equilibrium for an optimal control problem with non constant prtp we apply this software to a simplified version of the numerical climate change model used in the stern review for our calibration the policy recommendations are less sensitive to the prtp than widely believed

did the stern review underestimate us and global climate damages abstract the stern review received widespread attention for its innovative approach to the economics of climate change when it appeared in 2006 and generated controversies that have continued to this day one key controversy concerns the magnitude of the expected impacts of climate change stern s estimates based on results from the page2002 model sounded substantially greater than those produced by many other models leading several critics to suggest that stern had inflated his damage figures we reached the opposite conclusion in a recent application of page2002 in a study of the costs to the us economy of inaction on climate change this article describes our revisions to the page estimates and explains our conclusion that the model runs used in the stern review may well underestimate us and global damages stern s estimates from page2002 implied that mean business as usual damages in 2100 would represent just 0 4 percent of gdp for the united states and 2 2 percent of gdp for the world our revisions and reinterpretation of the page model imply that climate damages in 2100 could reach 2 6 percent of gdp for the united states and 10 8 percent for the world

modelling energy and non energy substitution a brief survey of elasticities estimating the degree of substitution between energy and non energy inputs is the key for any evaluation of environmental and energy policies yet given the variety of substitution elasticities the central question arises as to which measure would be most appropriate apparently allen s elasticities of substitution have been the most used measures in applied production analysis in line with frondel 2004 this paper argues that cross price elasticities are preferable for many practical purposes this conclusion is based on a survey of classical substitution measures such as those from allen morishima and mcfadden the survey highlights the fact that cross price elasticities are their essential ingredients

effects of aid for trade on extensive and intensive margins of greenfield fdi using a panel dataset of 105 developing countries for the period 2003 15 this paper assesses the effects of aid for trade aft on greenfield fdi flows to the aid recipient countries particularly this paper classifies the total dollar value of greenfield fdi flows to each recipient country in terms of four different layers the extensive and intensive margins of projects as well as the extensive and intensive margins of source countries applying the system gmm estimator this paper finds that aft not only increases the dollar value of fdi flows to the recipient countries but also helps diversify the greenfield projects and source countries in addition this paper finds that aft has a greater effect for greenfield fdi from donor developed countries than from non donor developing countries among the three components of aft aid for trade related infrastructure and aid for trade policy regulations are found to have positive links with greenfield fdi irrespective of source country groups yet their effects are larger for developed source countries in contrast aid for building productive capacity hinders greenfield fdi flows from non donor countries while it promotes greenfield fdi from donor countries we offer some explanations for this finding

a new global deal on climate change a global target of stabilizing greenhouse gas concentrations at between 450 and 550 parts per million carbon dioxide equivalent ppm co2e has proven robust to recent developments in the science and economics of climate change retrospective analysis of the stern review 2007 suggests that the risks were underestimated indicating a stabilization target closer to 450 ppm co2e climate policy at the international level is now moving rapidly towards agreeing an emissions pathway and distributing responsibilities between countries a feasible framework can be constructed in which each country takes on its own responsibilities and targets based on a shared understanding of the risks and the need for action and collaboration on climate change the global deal should contain six key features i a pathway to achieve the world target of 50 per cent reductions by 2050 where rich countries contribute at least 75 per cent of the reductions ii global emissions trading to reduce costs iii reform of the clean development mechanism to scale up emission reductions on a sectoral or benchmark level iv scaling up of rd v an agreement on deforestation and vi adaptation finance

functional separability and the existence of consistent aggregates in u s manufacturing comment this paper examines the relationship between separability of the direct production function in inputs and separability of the indirect production function in input prices in particular it shows that simultaneous direct and indirect weak separability implies homotheticity of the direct production function and hence homotheticity of the indirect production function thus inferences regarding direct separability based on empirical tests for indirect separability would be valid only if homotheticity is also imposed and treated as maintained hypothesis copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

how should the distant future be discounted when discount rates are uncertain abstract the so called weitzman gollier puzzle is the fact that two seemingly symmetric and equally plausible ways of dealing with uncertain future discount rates appear to give diametrically opposed results the puzzle is resolved when agents optimize their consumption plans the long run discount rate declines over time toward its lowest possible value

determining the generalized discount rate for risky projects it is widely recognized that the evaluation of risky projects critically depends on how the riskiness of future benefits is treated standard discounting theories are based on the assumption that risks that are uncorrelated with aggregate risk are diversified so that projects idiosyncratic risk is not priced however this may not be true for long term risky projects such as those with persistent idiosyncratic shocks in this study we investigate the impact of both aggregate risk and nondiversifiable idiosyncratic risk on the discount rate for risky projects we extend the generalized discount rate to the case of persistent shocks a particular advantage of the generalized discount rate is that it can be applied in the setting of incomplete markets we show that nondiversifiable idiosyncratic risk reduces the discount rate and increases the present value of projects future uncertain benefits we further apply our findings to the evaluation of emissions reduction projects

scale biased technological development in canada s industrialization 1900 1929 the relationships between factor use and scale and technological change and scale are emphasized in a translog cost function analysis of technological development in four sectors of canadian manufacturing 1900 29 by paying particular attention to the role of electrification in this technological development the major findings are that the increased use of electricity was not in general scale dependent and that electrification may have been a factor in increasing the relative productivity of smaller scale units over the period a hypothesis that states that technical change is partially induced by increased scale is however confirmed copyright 1990 by mit press

measures of capacity utilization and its determinants a study of indian manufacturing we estimate capacity utilization cu rates in for selected industries in indian manufacturing for the 20 year period 1976 1996 we estimate a generalized leontief variable cost function with capital as a quasi fixed input to derive our cu measures using error component techniques we note substantial variations in cu both across industries and over time in general we find that cu rates were higher in the earlier time period dropped in the mid 80s and started rising again in the early 90s cu rates in our analysis are sensitive to input prices with the sole exception of the price of labor we also confirm the standard result that variations in demand are a significant driving force for variations in cu we find that cu is positively related to the magnitude of labor intensity in production this holds for both between industries and within industries empirical results also indicate that traditional measures of cu such as minimum capital output ratio and peak to peak are not appropriate proxies for

gamma discounters are short termist weitzman 1998 2001 proposed a simple gamma discounting method to characterize the term structure of discount rates today from the sole distribution of future spot interest rates this rule which justifies using a smaller discount rate for longer maturities is now used for long term policy evaluations in the uk france norway and potentially in the us but we show that there is no social preference within the discounted expected utility framework that generically supports this pricing model and its underlying criterion the expected net present value rule considering a standard lucas tree economy we characterize the term structure from a coherent joint distribution of future spot interest rates and future consumption levels when future growth rates are positively serially correlated efficient discount rates today are decreasing with maturity and the gamma discounting rule yields discount rates that are larger than the efficient ones

positively gamma discounting combining the opinions of experts on the social discount rate the aggregated term structure of social discount rates that results from weitzman s 2001 survey of expert opinion is shown to be highly sensitive to the nature of the responses if variation reflects irreducible differences in ethical judgments the term structure can decline rapidly if variation occurred because respondents were forecasting future rates under uncertainty the term structure is much flatter because additional experts provide new information the former approach triples the social cost of carbon when compared to the latter the distinction between heterogeneity and uncertainty illustrates the need for a nuanced treatment of survey data in intergenerational policy making

a regional dynamic general equilibrium model of alternative climate change strategies outcomes and noncooperative equilibria this study finds that cooperative policies show much higher levels of emissions reductions than do noncooperative strategies that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries and that high income countries may be the major losers from cooperation jel h41 q4 q2 q20

a review of the stern review on the economics of climate change how much and how fast should we react to the threat of global warming the stern review argues that the damages from climate change are large and that nations should undertake sharp and immediate reductions in greenhouse gas emissions an examination of the review s radical revision of the economics of climate change finds however that it depends decisively on the assumption of a near zero time discount rate combined with a specific utility function the review s unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today s marketplace real interest rates and savings rates

the impact of climate change on the balanced growth equivalent an application of fund the stern review added balanced growth equivalents bge to the economic climate change research agenda we first propose rigorous definitions of the bge for multiple regions and under uncertainty we show that the change in the bge is independent of the assumed scenario of per capita income for comparable welfare economic assumptions as the stern review we calculate lower changes in bge between a business as usual scenario and one without climate impacts with the model fund than the stern review found with the model page we find that mitigation policies give even lower changes in bge and argue that those policy choices should be the focus of the research effort rather than total damage estimates according to our results the current carbon tax should be below 55 tc sensitivity analyses show that the stern review chose parameters that imply high impact estimates however for regionally disaggregated welfare functions we find changes in bge that are significantly higher than the results from the stern review both for total damage as for policy analysis with regional disaggregation and high risk aversion we observe fat tails and with that very high welfare losses

ethics of the discount rate in the stern review on the economics of climate change any comparison of the costs and benefits of climate change is dominated by the chosen discount rate but although the stern review emphasises the ethical nature of the parameters entering into its choice of a relatively low discount rate its discussion of the pure time preference parameter is unbalanced in particular no consideration is given to the role of agent relative ethics which i has a wellestablished philosophical pedigree going back to david hume ii is likely to correspond closely to world wide public attitudes towards intergenerational welfare and iii would entail discounting a unit of welfare accruing to future generations compared to an equal unit accruing to people alive today at a positive rate the authors also discuss the other ethical parameter upon which the discount rate depends namely the elasticity of marginal utility with respect to consumption in the conventional model this simultaneously reflects different aspects of inequality aversion as well as risk aversion which complicates its interpretation finally they discuss the divergence between market rates of discount and the low rate chosen in the review and the limitations on the one hand on the normative significance of market rates as well as the danger on the other hand of relying on rates chosen by elites or philosopher kings

on modeling and interpreting the economics of catastrophic climate change with climate change as prototype example this paper analyzes the implications of structural uncertainty for the economics of low probability high impact catastrophes even when updated by bayesian learning uncertain structural parameters induce a critical tail fattening of posterior predictive distributions such fattened tails have strong im plications for situations like climate change where a catastrophe is theoretically possible because prior knowledge cannot place sufficiently narrow bounds on overall damages this paper shows that the economic consequences of fat tailed structural uncertainty along with unsureness about high temperature damages can readily outweigh the effects of discounting in climate change policy analysis