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Caught Between Theory and Practice: Government, Market, and Regulatory Failure in Electricity Sector Reforms
Get PDFThe world-wide electricity sector reforms of the early 1990s have
revealed the considerable complexities of making market driven
reforms in network and infrastructure industries. This paper reflects on
the experiences to date with the process and outcomes of marketbased
electricity reforms across less-developed, transition and
developed economies. The reforms outcomes suggest similar
problems facing the electricity sector of these countries though their
contexts vary significantly. Many developing and developed
economies continue to have investment inadequacy concerns and the
need to balance economy efficiency, sustainability and social equity
after more than two decades of experience with reforms. We also use
a case study of selected countries that in many respects represent the
current state of the reform though they are rarely examined. Nepal,
Belarus and Ireland are chosen as country-specific case studies for this
purpose. We conclude that the changing dynamics of the electricity
supply industry (ESI) and policy objectives imply that analysing the
success and failure of reforms will indeed remain a complex process
The Market for "Rough Diamonds": Information, Finance and Wage Inequality
Get PDFDuring the past four decades both between and within group wage inequality increased
significantly in the US. I provide a microfounded justification for this pattern,
by introducing private employer learning in a model of signaling with credit constraints.
In particular, I show that when financial constraints relax, talented individuals
can acquire education and leave the uneducated pool, this decreases unskilled inexperienced
wages and boosts wage inequality. This explanation is consistent with US data from 1970 to 1997, indicating that the rise of the skill and the experience premium coincides with a fall in unskilled-inexperienced wages, while at the same time skilled or experienced wages do not change much. The model accounts for: (i) the increase in the skill premium despite the growing supply of skills; (ii) the understudied aspect of rising inequality related to the increase in the experience premium; (iii) the sharp growth of the skill premium for inexperienced workers and its moderate expansion for the experienced ones; (iv) the puzzling coexistence of increasing experience premium within the group of unskilled workers and its stable pattern among the skilled ones. The results hold under various robustness checks and provide some interesting policy implications about the potential conflict between inequality of opportunity and substantial economic inequality, as well as the role of minimum wage
policy in determining the equilibrium wage inequality
Nearer to Sraffa than Marx: Adam Smith on Productive and Unproductive Labour
Get PDFThis paper supercedes an earlier attempt I made to pin down the meaning and significance of Adam Smith’s theory of productive and unproductive labour. (Strathclyde Discussion Papers in Economics, No.08-05) My conclusion then was that while Smith’s understanding of what was needed to achieve economic growth was sound, his discussion was marred by apparently conflicting definitions of productive labour. That (essentially conventional) interpretation does not,
I now believe, do justice to Smith. Revision is therefore called for: hence the present paper.We investigate Adam Smith’s analysis of the properties of what he called “productive” - as against “unproductive” - labour, a concept which commentators have frequently found problematic. Puzzles have been noted and inconsistency alleged. A question arises – did Smith confuse two different concepts of productive labour? We believe that, despite the apparent problems, a coherent reading of Smith’s account of productive and unproductive labour is in fact possible: if
“productive labour” is understood to refer comprehensively to labour which not only maintains but, through producing a net surplus, adds to the community’s stock of wealth – as regards either the financial or the real resources which make possible economic growth – the difficulties with Smith’s treatment largely disappear
Beyond Intermediates: The Role of Consumption and Commuting in the Construction of Local Input-Output Tables
Get PDFIt is a well-established fact in the literature on simulating Input-Output tables that mechanical methods for estimating intermediate trade lead to biased results where cross-hauling is underestimated and Type-I multipliers are overstated. Repeated findings to this effect have led to a primary emphasis on advocating the accurate estimation of intermediate trade flows. This paper reviews previous research and argues for a qualification of the consensus view: When simulating IO
tables, construction approaches need to consider spill-over effects driven by wage and consumption flows. In particular, for the case of metropolitan economies, wage and consumption flows are important if accurate Type-II multipliers are to be obtained. This is demonstrated by constructing an interregional Input-Output table, which captures interdependencies between a city and its commuter belt, nested within the wider regional economy. In addition to identifying interdependencies caused by interregional intermediate purchases, data on subregional household incomes and commuter flows are used to identify interdependencies from wage payments and household consumption. The construction of the table is varied around a range of assumptions on intermediate trade and household consumption to capture the sensitivity of multipliers
How Optimal is US Monetary Policy?
Get PDFMost of the literature estimating DSGE models for monetary policy analysis assume that
policy follows a simple rule. In this paper we allow policy to be described by various forms of optimal policy - commitment, discretion and quasi-commitment. We find that, even after allowing for Markov switching in shock variances, the inflation target and/or rule parameters, the data preferred description of policy is that the US Fed operates under discretion with a marked increase in conservatism after the 1970s. Parameter estimates are similar to those obtained under simple rules, except that the degree of habits is significantly lower and the prevalence of cost-push shocks greater. Moreover, we find that the greatest welfare gains from the ‘Great Moderation’ arose from the reduction in the variances in shocks hitting the economy, rather than increased inflation aversion. However, much of the high inflation of the 1970s could have been avoided had policy makers been able to commit, even without adopting stronger anti-inflation objectives. More recently the Fed appears to have temporarily relaxed policy following the 1987 stock market crash, and has lost, without regaining, its post-Volcker conservatism following the bursting of the dot-com bubble in 2000
Asset Prices, Business Cycles, and Markov-Perfect Fiscal Policy when Agents are Risk-Sensitive
Get PDFWe study a business cycle model in which a benevolent fiscal authority must determine the
optimal provision of government services, while lacking credibility, lump-sum taxes, and the
ability to bond finance deficits. Households and the fiscal authority have risk sensitive preferences. We find that outcomes are affected importantly by the household's risk sensitivity,
but not by the fiscal authority's. Further, while household risk-sensitivity induces a strong
precautionary saving motive, which raises capital and lowers the return on assets, its effects on
fluctuations and the business cycle are generally small, although more pronounced for negative
shocks. Holding the stochastic steady state constant, increases in household risk-sensitivity
lower the risk-free rate and raise the return on equity, increasing the equity premium. Finally,
although risk-sensitivity has little effect on the provision of government services, it does cause
the fiscal authority to lower the income tax rate. An additional contribution of this paper is
to present a method for computing Markov-perfect equilibria in models where private agents
and the government are risk-sensitive decisionmakers
Consumption Inequality and Discount Rate Heterogeneity
Get PDFAlthough standard incomplete market models can account for the magnitude of the
rise in consumption inequality over the life cycle, they generate unrealistically concave age
pro.les of consumption inequality and unrealistically less wealth inequality. In this paper, I
investigate the role of discount rate heterogeneity on consumption inequality in the context
of incomplete market life cycle models. The distribution of discount rates is estimated using
moments from the wealth distribution. I .nd that the model with heterogeneous income
pro.les (HIP) and discount rate heterogeneity can successfully account for the empirical
age pro.le of consumption inequality, both in its magnitude and in its non-concave shape.
Generating realistic wealth inequality, this simulated model also highlights the importance
of ex ante heterogeneities as main sources of life time inequality
Currency Forecast Errors at Times of Low Interest Rates: Evidence from Survey Data on the Yen/Dollar Exchange Rate
Get PDFUsing survey expectations data and Markov-switching models, this paper evaluates the
characteristics and evolution of investors' forecast errors about the yen/dollar exchange
rate. Since our model is derived from the uncovered interest rate parity (UIRP)
condition and our data cover a period of low interest rates, this study is also related to
the forward premium puzzle and the currency carry trade strategy. We obtain the
following results. First, with the same forecast horizon, exchange rate forecasts are
homogeneous among different industry types, but within the same industry, exchange
rate forecasts differ if the forecast time horizon is different. In particular, investors tend
to undervalue the future exchange rate for long term forecast horizons; however, in the
short run they tend to overvalue the future exchange rate. Second, while forecast errors
are found to be partly driven by interest rate spreads, evidence against the UIRP is
provided regardless of the forecasting time horizon; the forward premium puzzle
becomes more significant in shorter term forecasting errors. Consistent with this finding,
our coefficients on interest rate spreads provide indirect evidence of the yen carry trade
over only a short term forecast horizon. Furthermore, the carry trade seems to be active
when there is a clear indication that the interest rate will be low in the future
QWERTY and the search for optimality
Get PDFThis paper shows how one of the developers of QWERTY continued to use the trade secret
that underlay its development to seek further efficiency improvements after its introduction.
It provides further evidence that this was the principle used to design QWERTY in the first
place and adds further weight to arguments that QWERTY itself was a consequence of
creative design and an integral part of a highly efficient system rather than an accident of
history. This further serves to raise questions over QWERTY's forced servitude as 'paradigm
case' of inferior standard in the path dependence literature. The paper also shows how
complementarities in forms of intellectual property rights protection played integral roles in
the development of QWERTY and the search for improvements on it, and also helped
effectively conceal the source of the efficiency advantages that QWERTY helped deliver
Spatial Takeoff in the First Industrial Revolution
Get PDFUsing the framework of Desmet and Rossi-Hansberg (forthcoming), we present
a model of spatial takeoff that is calibrated using spatially-disaggregated occupational data for England in c.1710. The model predicts changes in the spatial distribution of agricultural and manufacturing employment which match data for c.1817 and 1861. The model also matches a number of aggregate changes that characterise the first industrial revolution. Using counterfactual geographical distributions, we show that the initial concentration of productivity can matter for whether and when an industrial takeoff occurs. Subsidies to innovation in either sector can bring forward the date of takeoff while subsidies to the use of land by manufacturing firms can significantly delay a takeoff because it decreases spatial
concentration of activity