a fiscal reform for increasing employment and mitigating co2 emissions in europe this article discusses the possibility of promoting a fiscal reform which would at a european level permit a double dividend to be obtained the mitigation of co 2 emissions and stimulation of employment creation in this respect a co2 energy tax is considered in the light of financing cuts in social contributions equivalent to 1 of the european gdp simulations carried out with six european countries reveal that under certain conditions this hypothesis could be verified even if the net impact on unemployment and co 2 is rather limited

market barriers to energy efficiency abstract discussions of energy policy in an environmentally constrained world often focus on the use of tax instruments to internalize the external effects of energy utilization or achieve specified reductions in energy use in the most cost effective manner a substantial literature suggests however that significant opportunities exist to reduce energy utilization by implementing technologies that are cost effective under prevailing economic conditions but that are not fully implemented by existing market institutions this paper examines the theory of the market for energy using equipment showing that problems of imperfect information and transaction costs may bias rational consumers to purchase devices that use more energy than those that would be selected by a well informed social planner guided by the criterion of economic efficiency consumers must base their purchase decisions on observed prices and expectations of post purchase equipment performance if it is difficult or costly for individuals to form accurate and precise expectations the level of energy efficiency achieved by competitive markets will vary from the socially efficient outcome such market barriers suggest a role for regulatory intervention to improve market performance at prevailing energy prices

the role of games in security design we contend that security design should be approached as a problem of game design that is contracts should specify the procedures that govern the behavior of contract participants in determining outcomes as well as the allocations resulting from those outcomes we characterize optimal contracts in two nested classes all contracts including those that depend on the state and state independent contracts we demonstrate that in situations in which the dependence of contracts on the state is limited contracts designed as games can improve the allocation of resources relative to nonstrategic allocation rules article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

normal markets market imperfections and energy efficiency abstract the conventional distinction between economic and engineering approaches to energy analysis obscures key methodological issues concerning the measurement of the costs and benefits of policies to promote the adoption of energy efficient technologies the engineering approach is in fact based upon firm economic foundations the principle of lifecycle cost minimization that arises directly from the theory of rational investment thus evidence that so called market barriers impede the adoption of cost effective energy efficient technologies implies the existence of market failures as defined in the context of microeconomic theory problems of imperfect information and bounded rationality on the part of consumers for example may lead real world outcomes to deviate from the dictates of efficient resource allocation a widely held contrary view that the engineering view lacks economic justification is based on the fallacy that markets are normally efficient

a policy approach to the environmental impacts of technological lock in abstract the broadening spectrum of environmental problems the uncertainty regarding their scale and duration and their possible irreversibility in the context of the growing social preference for environmental quality make it necessary to undertake an ex ante approach to the link between productive activity and environmental quality this link lies in technology and the right approach is to understand how the process of technological change can lead towards sustainability the added value of evolutionary economics in the context of environmental policy resides mainly in the fact that it warns that certain inferior environmental technologies may be locked in to the economic system the results of our model show that it would be advisable to undertake policies expressly aimed at the process of sustainable technological change applying an ex ante precautionary approach in a way that is complementary to the conventional equilibrium oriented environmental policies the nature of these policies and how they might be implemented are questions we will address from this novel approach to the concept of sustainable development in short the main objectives of this paper are to understand more fully the dynamics of the process of technological change its role in sustainable development and to assess the implications of this dynamic approach to techno environmental policy to achieve these goals we have developed an agent based model abm using distributed artificial intelligence dai concepts drawn from the general methodology of social simulation

technical evidence for assessing the performance of markets affecting energy efficiency abstract this paper focuses on the empirical basis for skepticism about the effectiveness of the market mechanism in promoting cost effective energy efficiency improvements we present a framework for evaluating engineering economic evidence on the diffusion of energy efficiency improvements and then present a series of examples within this framework that provide evidence for the existence of market imperfections related to energy efficiency we conclude with a challenge to economists policy analysts and technologists to take this empirical evidence seriously and sponsor further collaborative research in this area

offshore assembly provisions and the structure of protection abstract this paper derives the structure of protection afforded by tariffs that are subject to an offshore assembly provision oap the effects of an oap on the equilibrium price relationships are shown to depend on two sets of factors the amount of domestic consumption of the final good in relation to the level of output of the domestic component and assembly industries and the height of barriers to trade in the intermediate good compared to the tariff savings afforded by oap exemption of domestic value added an interesting result is that equilibrium under an oap scheme may entail two way trade in identical intermediate goods

strategies for cost effective carbon reductions a sensitivity analysis of alternative scenarios analyses of alternative futures often present results for a limited set of scenarios with little if any sensitivity analysis to identify the factors affecting the scenario results this approach creates an artificial impression of certainty associated with the scenarios considered and inhibits understanding of the underlying forces this paper summarizes the economic and carbon savings sensitivity analysis completed for the scenarios for a clean energy future study iwg 2000 its 19 sensitivity cases provide insight into the costs and carbon reduction impacts of a carbon permit trading system demand side efficiency programs and supply side policies impacts under different natural gas and oil price trajectories are also examined the results provide compelling evidence that policy opportunities exist to reduce carbon emissions and save society money

rethinking the costs related to global warming a survey of the issues one approach to the economic analysis of global warming seeks to balance the costs of damage from or adaptation to it with the costs of mitigating it the costs of adaptation and damage have been estimated using techniques of environmental evaluation but are subject to a wide margin of uncertainty the costs of mitigation principally by reducing the emissions of co2 have been estimated using different kinds of economic models some of the results of which have suggested that very little abatement of carbon emissions is justified before the costs of abatement exceed the benefits of it in terms of foregone damage and adaptation costs the paper analyses the extent to which this conclusion is a function of the modelling assumptions and techniques used rather than likely practical outcomes with regard to the models treatment of unemployed resources revenue recycling prior distortions in the economy due to the tax system and possible dynamic effects from the introduction of a carbon energy tax it concludes that with different and arguably more appropriate treatment of the above issues especially when the secondary benefits of reducing co2 emissions are also taken into account it is not clear that even substantial reductions in the use of fossil fuels will incur net costs especially if there is the prospect of even moderate costs from global warming

the macroeconomics of modigliani miller abstract we examine the validity of a macroeconomic version of the modigliani miller theorem by this we mean that different capital structures can occur in equilibrium and that all of them are associated with the same allocation of commodities and the same welfare we develop a general equilibrium model with two production sectors risk averse households and financial intermediation by banks banks are funded by safe deposits and outside equity and monitor borrowers in lending two sets of equilibria emerge these sets differ with regard to the debt equity ratios of banks investment in risky technologies bank defaults and whether first best allocations are attained hence the macroeconomic version of the modigliani miller theorem fails to hold imposing minimum equity capital requirements however eliminates all inefficient equilibria and guarantees the validity of the macroeconomic version of the modigliani miller theorem

seniority and maturity of debt contracts abstract this paper provides a model of how borrowers with private information about their credit prospects choose seniority and maturity of debt increased short term debt leads lenders to liquidate too often it also increases the sensitivity of financing costs to new information although better than average borrowers desire information sensitivity the model implies that short term debt will be senior to long term debt and that long term debt will allow the issue of additional future senior debt the model also has implications on the structure of leveraged buyouts and on how various types of lenders respond to potential defaults

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

the welfare cost of bank capital requirements abstract capital requirements are the cornerstone of modern bank regulation yet little is known about their welfare cost this paper measures this cost and finds that it is surprisingly large i present a simple framework which embeds the role of liquidity creating banks in an otherwise standard general equilibrium growth model a capital requirement limits the moral hazard on the part of banks that arises due to deposit insurance however this capital requirement is also costly because it reduces the ability of banks to create liquidity the key insight is that equilibrium asset returns reveal the strength of households preferences for liquidity and this allows for the derivation of a simple formula for the welfare cost of capital requirements that is a function of observable variables only using us data the welfare cost of current capital adequacy regulation is found to be equivalent to a permanent loss in consumption of between 0 1 and 1

understanding carbon lock in abstract this paper narrative argues that industrial economies have been locked into fossil fuel based energy systems through a process of technological and institutional co evolution driven by path dependent increasing returns to scale it is asserted that this condition termed carbon lock in creates persistent market and policy failures that can inhibit the diffusion of carbon saving technologies despite their apparent environmental and economic advantages the notion of a techno institutional complex is introduced to capture the idea that lock in occurs through combined interactions among technological systems and governing institutions while carbon lock in provides a conceptual basis for understanding macro level barriers to the diffusion of carbon saving technologies it also generates questions for standard economic modeling approaches that abstract away technological and institutional evolution in their elaboration the question of escaping carbon lock in is left for a future paper

effects of a carbon price in the u s on economic sectors resource use and emissions an input output approach abstract despite differences in their implementation most carbon policies aim to have similar outcomes effectively raising the price of carbon intensive products relative to non carbon intensive products while it is possible to predict the simple broad scale economic impacts of raising the price of carbon intensive products the demand for non carbon intensive products will increase understanding the economic and environmental impacts of carbon policies throughout the life cycle of both types of products is more difficult using the example of a carbon tax this study proposes a methodology that integrates short term policy induced consumer demand changes into the input output framework to analyze the environmental and economic repercussions of a policy environmental repercussions include the direct and the indirect impacts on emissions materials flow in the economy and the reliance on various ecosystem goods and services the approach combines economic data with data about physical flow of fossil fuels between sectors consumption of natural resources and emissions from each sector it applies several input output modeling equations sequentially and uses various levels of aggregation disaggregation it is illustrated with the data for the 2002 u s economy and physical flows the framework provides insight into the short term complex interactions between carbon price and its economic and environmental effects

on the assessment of utility demand side management programs abstract we compare the total resource cost and willingness to pay accounting methods of calculating demand side management benefits and costs after a review of massachusetts electric company s process evaluation data we conclude that the total resource cost method more accurately represents actual program results however even the total resource cost method may be incomplete since it fails to account for savings associated with efficient equipment purchased independent of the utility program but as a direct result of participants positive educational experiences in the program

carbon trading in the policy mix the kyoto protocol is stimulating the development of emissions trading schemes at the national and international levels these are being introduced alongside existing policy instruments such as carbon taxes and negotiated agreements leading to complex problems of policy interaction but the topic of policy interaction remains under researched this paper aims to improve understanding of such interactions by examining the conditions under which a cap and trade scheme for carbon dioxide emissions may usefully coexist with carbon energy taxes support mechanisms for renewable electricity and policies to promote energy efficiency the paper argues that each of these instrument combinations may be acceptable provided they contribute to either improving the static or dynamic efficiency of the trading scheme or delivering other valued policy objectives but since the coexisting instruments may raise overall abatement costs while contributing nothing further to emission reductions the objectives and trade offs within the policy mix must be explicit

covenants and collateral as incentives to monitor although monitoring borrowers is thought to be a major function of financial institutions the presence of other claimants reduces an institutional lender s incentives to do this thus loan contracts must be structured to enhance the lender s incentives to monitor covenants make a loan s effective maturity and the ability to collateralize makes a loan s effective priority contingent on monitoring by the lender thus both covenants and collateral can be motivated as contractual devices that increase a lender s incentive to monitor these results are consistent with a number of stylized facts about the use of covenants and collateral in institutional lending modern finance theory suggests that financial intermediaries such as commercial banks insurance companies and finance companies monitor and control their borrowers on behalf of other investors 1 this article investigates how the loans made by these institutions can be structured so as to best enhance the institutions role as delegated monitors covenants and collateral are common features of loans made by financial institutions but these features are somewhat difficult to justify consider loan covenants clauses in a loan contract that require the borrower to take or refrain from various actions berlin and mester 1992 magee and sridhar 1994 and park 1994 show that by giving institutions the right to renegotiate or call loans when covenants are violated covenants serve as tripwires that enhance the flexibility and efficiency of financial contracting also as documented in smith and warner 1979 control rights from covenants reduce borrower adverse selection or moral hazard nevertheless by allowing institutions to demand repayment based on any information contractible or not

globalizing carbon lock in this paper extends the arguments surrounding carbon lock in elaborated in unruh energy policy 28 2000 817 30 2002 317 to countries currently undergoing industrialization it argues that for numerous reasons industrializing countries are unlikely to leapfrog carbon intensive energy development on the contrary carbon lock in may be globalizing and could further constrain climate change mitigation options it is then argued that many policy recommendations ignore carbon lock in possibly limiting their potential for successful implementation the paper then discusses four policy approaches that appear to have advantages given lock in conditions it is recognized however that relative ease of implementation does not necessarily equate with superiority instead it is merely a path dependent outcome of past development decisions pursuing policies on the basis of relative implementation ease may help address the issue of climate change but could also result in sub optimal outcomes along other dimensions of sustainable development

research frontiers in the economics of climate change academic and policy debates over climate change risks and policies have stimulated economic research in a variety of fields in this article i briefly discuss eight overlapping areas of current research in which further effort is particularly warranted these areas include decision criteria for policy risk assessment and adaptation uncertainty and learning abatement cost and the innovation and diffusion of technology and the credibility of policies and international agreements further analysis in these areas not only will advance academic understanding but also will provide insights of considerable importance to policymakers

secured lending and default risk equilibrium analysis policy implications and empirical results the authors examine collateral in a competitive equilibrium in which borrowers can choose hidden actions and may additionally possess hidden knowledge apart from explaining the widespread use of collateral despite deadweight costs they show that an increase in the riskless interest rate causes equilibrium loan rates and collateral requirements to increase a decline in the deadweight costs of collateral reduces the equilibrium collateral use under moral hazard and an increase in the borrower s project size reduces equilibrium collateral use under moral hazard some of these predictions are tested and found to be supported by the data copyright 1991 by royal economic society

credit market competition and capital regulation market discipline for financial institutions can be imposed not only from the liability side as has often been stressed in the literature on the use of subordinated debt but also from the asset side this will be particularly true if good lending opportunities are in short supply so that banks have to compete for projects in such a setting borrowers may demand that banks commit to monitoring by requiring that they use some of their own capital in lending thus creating an asset market based incentive for banks to hold capital borrowers can also provide banks with incentives to monitor by allowing them to reap some of the benefits from the loans which accrue only if the loans are in fact paid off since borrowers do not fully internalize the cost of raising capital to the banks the level of capital demanded by market participants may be above the one chosen by a regulator even when capital is a relatively costly source of funds this implies that capital requirements may not be binding as recent evidence seems to indicate

the costs of mitigating carbon emissions a review of methods and findings from european studies abstract conventional wisdom has it that top down studies of mitigation costs are too pessimistic while bottom up studies are too optimistic in examining mitigation cost studies for western europe this paper finds this interpretation to be flawed the paper expands the analytical framework for interpreting mitigation cost studies evaluates the treatment of no regrets options and other input assumptions in the various studies and includes findings from recent integrated top down bottom up modeling assessments not covered in the ipcc report based on these new elements it is found that mitigation costs tend to be overestimated not only in top down studies but also in bottom up studies given this pervasive bias toward pessimism the body of existing mitigation cost assessments for western europe can be read as follows over the next three to four decades a combination of tax shifts market transformation instruments and policies to reform subsidies and internalize non climatic externalities could cut carbon emissions in western europe by 40 50 relative to the base year at no loss or at a gain in gdp averaged over the medium term and including a phase in period an economically optimal rate of implementing western europe s no regrets potentials is found to be in the neighborhood of 2 per year relative to base year levels

us mexico employment effects of repealing the us offshore assembly provision the oaps are contributing to the actual displacement and impending displacement in the next few years of scores of thousands of unskilled and semi skilled factory production workers who are in the economy mainstream nathaniel goldfinger afl cio 1970 we believe that the only benefits derived from the existence of the oap are reached by transnational enterprises through increases in profits this however cannot offset the harm done to the thousands of american s whose livelihoods have been sacrificed in the pursuit of those profits mark anderson afl cio 1987 what my well intentioned but misinformed colleagues fail to realise is that without provisions like the oap products assembled in mexico would be 100 per cent made in asia the loss therefore would equal not only the jobs used in the assembly process in mexico but those used to manufacture the components produced here in the united states hon jim kolbe 1987 the employment effects of the offshore assembly provision oap are h

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

a macroprudential approach to financial regulation many observers have argued that the regulatory framework in place prior to the global financial crisis was deficient because it was largely microprudential in nature a microprudential approach is one in which regulation is partial equilibrium in its conception and aimed at preventing the costly failure of individual financial institutions by contrast a macroprudential approach recognizes the importance of general equilibrium effects and seeks to safeguard the financial system as a whole in the aftermath of the crisis there seems to be agreement among both academics and policymakers that financial regulation needs to move in a macroprudential direction in this paper we offer a detailed vision for how a macroprudential regime might be designed our prescriptions follow from a specific theory of how modern financial crises unfold and why both an unregulated financial system as well as one based on capital rules that only apply to traditional banks is likely to be fragile we begin by identifying the key market failures at work why individual financial firms acting in their own interests deviate from what a social planner would have them do next we discuss a number of concrete steps to remedy these market failures we conclude the paper by comparing our proposals to recent regulatory reforms in the united states and to proposed global banking reforms

a model of leverage based on risk sharing this paper offers a new approach based on risk sharing to endogenize the leverage of financial intermediaries it endogenizes debt as the optimal contract for external financing thereby capturing two features of leverage debt serves to boost the return on equity and equity provides safety net for debt the paper derives a novel prediction that when the asset side risk rises the leverage ratio is reduced but the profit margin of leveraging is actually widened

macroeconomic and sectoral impacts of carbon taxation a case for the japanese economy it is now commonly recognized that a carbon tax is one of the most effective and economically efficient policy instruments to reduce carbon dioxide co2 emissions if cost effective however carbon taxes might impose widely distributed economic burdens among industrial sectors or firms particularly when factor mobilities are imperfect in the short run since high economic performance could be hindered by a serious implementation of the polluter pays principle we examine and compare a trade off relationship between the expected macroeconomic costs and sectoral impacts in a simplified general equilibrium framework attempts are also made to evaluate a government subsidy financed by tax revenues to investments in new energy efficient technologies as a complementary mitigation policy to carbon taxation

bank capital and credit market competition will competitive pressure lead to higher capital levels abstract this paper establishes a theoretical model to study the relationship between credit market competition and bank capital in the model bank capital can alleviate the debt overhang problem and the extent to which banks can enjoy the gain of holding capital is decreasing in the competitive pressure in the credit market it is shown that credit market competition reduces banks incentive to hold capital deposit insurance also induces banks to hold less capital in addition bank capital regulation is welfare improving and banks may voluntarily hold capital in excess of regulatory minimums

corporate finance and the monetary transmission mechanism we analyze the transmission effects of monetary policy in a general equilibrium model of the financial sector with bank lending and securities markets bank lending is constrained by capital adequacy requirements and asymmetric information adds a cost to outside bank equity capital in our model monetary policy does not affect bank lending through changes in bank liquidity rather it operates through changes in the spread of bank loans over corporate bonds which induce changes in the aggregate composition of financing by firms and in banks equity capital base the model produces multiple equilibria one of which displays all the features of a credit crunch this article is concerned with the monetary transmission mechanism through the financial sector in particular the banking sector and securities markets specifically it analyzes the effects of open market operations on bank lending and securities issues in a real economy by building on recent advances in the microeconomics of banking it provides some underpinnings for the credit view of monetary policy which in its simplest form relies on an exogenously assumed limited substitutability between bank loans and bonds the macroeconomics literature distinguishes between the money view and credit view of monetary policy transmission bernanke and blinder 1988 1992 the money view takes bonds and loans to be perfect substitutes and only allows for the effects of monetary policy on aggregate investment consumption and savings through changes in interest rates the credit view allows for an additional effect on investment and economic activity operating through bank credit supply

the information content of distressed restructurings involving public and private debt claims abstract this paper examines debt restructurings by financially distressed firms we develop a model which predicts that in public debt exchange offers firms with unfavorable private information will offer equity claims to convince bondholders that the firm s prospects are poor in contrast offering equity to well informed private lenders conveys favorable private information to outsiders consistent with our analysis we find positive average abnormal returns around restructurings that offer equity to private lenders and senior debt to public debtholders and we find significant negative average abnormal returns when private lenders are offered senior debt and public lenders are offered equity

collateral and rationing sorting equilibria in monopolistic and competitive credit markets the authors examine how market structure affects credit allocation under universal risk neutrality and asymmetric information about borrowers they consider both monopolistic and perf ectly competitive banks and examine the role of collateral in each ca se when a bank is a monopolist on the loan side they find collatera l is never used and asymmetric information results in reduced bank le nding under perfect competition collateral has a useful sorting rol e moreover rationing is possible even with collateral availability and perfectly elastic deposit supply in this setting the authors sh ow co signers are valuable social welfare properties of the monopoly and competitive equilibria are also compared copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

are bank capital ratios too high or too low incomplete markets and optimal capital structure we study the effect of relative risk aversion on optimal capital structure in a general equilibrium model of intermediation with incomplete markets jel d5 g2

estimating bounds on the economy wide effects of the cef policy scenarios abstract the scenarios for a clean energy future study relied primarily on bottom up technology based methods to estimate costs associated with its scenarios these methods however do not allow for calculation of economy wide or general equilibrium effects of the policies considered we propose and apply a means of combining the bottom up estimates with estimates of the costs associated with a carbon charge obtained from computable general equilibrium models our approach is based on the concept of production inefficiency the economy lies within its production frontier with respect to the provision of energy services the cef technology policies are interpreted as moving the economy toward its frontier as well as moving the frontier outward while the carbon charge induces a substitution effect along the frontier this perspective allows a synthesis of the two sets of calculations

crises and capital requirements in banking we analyze a general equilibrium model in which there is both adverse selection of and moral hazard by banks the regulator can screen banks prior to giving them a licence audit them ex post to learn the success probability of their projects and impose capital adequacy requirements capital requirements combat moral hazard when the regulator has a strong screening reputation and they otherwise substitute for screening ability crises of confidence can occur only in the latter case and contrary to conventional wisdom the appropriate policy response may be to tighten capital requirements to improve the quality of surviving banks

cheaper oil a turning point in paris climate talk abstract the 2015 paris climate conference is designed to achieve a legally binding agreement on climate change for the first time in over 20 years however the participants face a much tougher task in striking a new deal after the disappointing preparatory climate change talks in lima however falling oil prices have created more room to maneuver for the forthcoming global climate talks than previously thought average global oil prices have plunged from usd 110 per barrel in june 2014 to approximately usd 60 per barrel in may 2015 with the sharply falling oil prices and the downward pressure on gas and coal prices both the removal of fossil fuel subsidies ffs and the implementation of a carbon tax could be conducted without raising energy costs a growing body of research suggests that removing ffs and implementing a carbon tax could significantly reduce carbon emissions thus the approximately 50 drop in oil prices has provided a window of opportunity to reduce carbon emissions by removing ffs and internalizing climatic externalities worldwide as this window will not last forever both these measures should be implemented quickly and be considered central to the paris climate change conference compared with the lack of success in the previous two decades of climate diplomacy these two measures constitute technical and economic factors that will make a difference in the 2015 un climate change conference

the welfare effects of repealing the u s offshore assembly provision abstract this paper develops new estimates of the welfare and domestic production effects of repealing the us offshore assembly provision oap although the controversy surrounding the oap has recently intensified the only such estimates of repealing the oap weredeveloped by finger 1976 the estimates are developed by applying a partial equilibrium trade model of a two stage production process to nineteen productct categories in which oap trade was important in 1986 the paper find that repael of the oap reduces domestic welfare however the effects are small and almost negligible in percentage terms the important effects of repeal are distributional

subordinated debt market discipline and bank risk this paper demonstrates that subordinated debt subdebt thereafter regulation can be an effective mechanism for disciplining banks by reducing the chance that managers of distressed banks can take value destroying actions to benefit themselves subdebt regulation may encourage banks to lower asset risk moreover subdebt regulation and bank capital requirements can be complements for alleviating the banks moral hazard problems to make subdebt regulation effective regulators may need impose ceilings on the interest rates of subdebt prohibit collusion between banks and subdebt investors and require subdebt to convert into the issuing bank s equity when the government provides assistance to the bank

the energy efficiency gap what does it mean abstract as renewed attention has been given by policy makers to energy conservation issues it has frequently been asserted that an energy efficiency gap exists between actual and optimal energy use the critical questions is how to define the optimal level of energy efficiency this paper seeks to disentangle some confusing strands of argument that are frequently brought to bear on this question by identifying the major conceptual issues that determine the set of feasible answers we identify five separate and distinct notions of optimality the economists economic potential the technologists economic potential hypothetical potential the narrow social optimum and the true social optimum each of these has associated with it a corresponding definition of the energy efficiency gap our analysis demonstrates that necessary preconditions for identifying the right measure of the energy efficiency gap include understanding and disentangling market failure and non market failure explanations for the gradual diffusion of energy efficient technologies

banks and liquidity banks perform valuable activities on either side of their balance sheets on the asset side they make loans to difficult illiquid borrowers on the liability side they provide liquidity on demand to depositors but there seems to be a fundamental incompatibility between the two activities the demands for liquidity by depositors may arrive at an inconvenient time and force the fire sale liquidation of illiquid assets furthermore because depositors are served in sequence the prospect of fire sales may precipitate self fulfilling runs that further jeopardize bank activities is this an aberration stemming from historical accident and enshrined by deposit insurance or is there logic hitherto unnoticed for the bank s choice of activities our recent work suggests that the answer to the latter question is yes in order to describe why a bank s fragile capital structure allows it to create liquidity and to explain why bank loans are illiquid we present a simple example based on diamond and rajan 2001a

a theory of debt and equity diversity of securities and manager shareholder congruence this paper shows how the optimal financial structure of a firm complements incentive schemes to discipline managers and how the securities return streams determine the claim holders incentives to intervene in management the theory rationalizes 1 the multipucity of securities 2 the observed correlation between return streams and control rights of securities and 3 the partial congruence between managerial and equity holder preferences over policy choices and monetary rewards as well as the low level of interference of equity in management the theory also offers new prospects for a reappraisal of the earlier corporate finance literature