1,720,986 research outputs found
Conservation, risk aversion, and livestock insurance: The case of the snow leopard
Full text linkLivestock insurance consists of livestock owners pooling resources together in order to hedge against the risk of attacks by predators on their individual herds. We use an economic model to study optimal livestock insurance and to discuss its viability in improving outcomes for livestock owners. The benefit from insurance depends on the livestock owners' level of risk aversion. We calibrate the model using data from Project Snow Leopard and investigate the potential of livestock insurance for achieving conservation goals. The model predicts that leopard killings would decline under the proposed livestock insurance contract. The level of the decline depends on the degree of risk aversion. Our analysis calls for surveys that measure risk aversion of local livestock owners to be conducted in any situation where insurance is considered as a policy towards achieving conservation goals. Finally, we discuss how the proposed livestock insurance scheme could be implemented in practice
Monetary Emissions Trading Mechanisms
No full textEmissions trading mechanisms have been proposed, and in some cases implemented, as a tool to reduce pollution. Under an emissions trading system ETS), producers must acquire permits equal to the amount of their emissions in a given period. These permits are then remitted to the issuing institution. So far, the results from actual implementations of emissions trading have been mixed, and some policymakers have argued that taxes would be more effective in reducing emissions. Related criticisms have also appeared in academic studies. For example, in a highly publicized recent study, Clò and Vendramin (2012) criticized features of the ETS that have led to low prices for permits. They also point out shortcomings, specifically in regard to the ability of emissions trading to induce investment in new technologies. They advocate a tax as a more effective non-distortionary instrument. We use insights from dynamic mechanism design in monetary economics to derive properties of optimal dynamic emissions trading mechanisms. We argue that efficient tax policies must be “state-contingent,” and we demonstrate an equivalence between such state-contingent taxes and emissions trading. Restrictions resulting from the money-like feature of permits can break this equivalence when there is endogenous progress in clean technologies. We argue that these restrictions must be taken into consideration in actual policy implementation. Our analysis introduces several ingredients that are largely missing in the existing literature. First, if the policy objective is to maximize social welfare, as opposed to simply reducing emissions to a predetermined level, and if the economy is subject to shocks, then it is likely that the optimal path for emissions will be time-dependent. In particular, the welfare maximizing level of emissions will depend on the aggregate state of the economy. Second, our analysis identifies state-contingent taxes as an important tool toward implementing efficient levels of output and emissions. Third, we discuss the optimal permit-issue policy in the presence of shocks. Our model shows that a state-contingent tax system can do at least as well as a cap-and-trade system in most cases, and it can dominate it when there is endogenous clean technology adoption. More generally, we argue that policymakers should think about permit-issue in a manner similar to that used by central bankers. At the optimum, the price of permits must increase over time. In the presence of aggregate risk, the optimal supply of permits is not constant over time and must respond to the shocks affecting the economy. Finally, when firms can choose the level of technological progress in green technologies, emissions trading cannot implement the optimal allocation if there is a high fraction of “dirty firms.” The reason is that emissions trading either makes technology adoption by these firms too slow, or it must distort production levels relative to the first best. Interestingly, fiscal policies do not suffer from this drawback
Aggregate Economic Implications of New Technologies in Energy Industry
No full textThis thesis studies technological progress in the energy sector and the transition
path from fossil fuels to renewable energy, with a particular emphasis on the conse-
quences to the whole economy. Currently, there is an active discussion regarding sub-
sidizing renewable energy sources, which are often portrayed as the sole future source
of energy and the driver of signi cant employment and economic growth. However,
innovation in the fossil fuel sector and its continuing development can also be a game
changer and should not be ignored.
In the rst chapter, we use a dynamic general equilibrium model with endogenous
technological progress in energy production to study the optimal transition from
fossil fuels to renewable energy in a neoclassical growth economy. We emphasize
the importance of modeling technology innovation in the fossil fuel sector, as well
as in the renewable energy industry. Advancements in the development of shale
oil and gas increase the supply of fossil fuel. This implies that the \parity cost
target" for renewables is a moving one. We believe that this important observation
is often neglected in policy discussions. Our quantitative analysis nds that these
advancements allow fossil fuels to remain competitive for a longer period of time.
While technological breakthroughs in the fossil fuel sector have postponed the
full transition to renewable energy, they have also created many jobs and stimulated local economies. In the third chapter, we use an econometric analysis to compare job
creation in the shale gas and oil sectors with that in the wind power sector in Texas.
The results show that shale development and well drilling activities have brought
strong employment and wage growth to Texas, while the impact of wind industry
development on employment and wages statewide has been either not statistically
signi cant or quite small.
The rst and third chapters question the current enthusiasm in policy circles for
only focusing on alternative energy. Chapter 2 provides some theoretical support
for subsidizing renewable energy development. Here we develop a decentralized ver-
sion of the model in Chapter 1 and allow for technological externalities. We analyze
the e ciency of the competitive equilibrium solution and discuss in particular dif-
ferent scenarios whereby externalities can result in an ine cient outcome. We show
that the decentralized economy with externalities leads to under-investment in R&D,
lower investment and consumption, and delayed transition to the renewable economy.
This may provide an opportunity for government action to improve private sector
outcomes
Essays on Asset Pricing
No full textThis dissertation studies asset pricing from three perspectives.
The first chapter takes the view of a long-run buy-and-hold investor, and offers an an explanation to prominent cross-sectional return anomalies. A commonality shared by these anomalies is that their returns are negatively correlated with the market. I show that this negative covariance implicitly embeds the mispricing of the CAPM beta -- the first and one of the most robust asset pricing puzzles -- in these cross-sectional anomalies. Taking into account the exposure to the beta mispricing either attenuates or eliminates the economic and statistical significance of risk-adjusted returns to a large set of asset pricing puzzles.
Given the presence of well-documented cross-sectional return anomalies, the second chapter examines whether and how institutional investors trade to profit, and thereby to mitigate these anomalies. Consistent with the literature, I find that institutions in aggregate do not trade to take advantage of most of these cross-sectional return predictabilities. However, I present evidence that institutions in fact correctly trade to capture the beta risk-premium when and only when it is present in the market. Findings support the view that institutions are the more rational set of investors that seem to capture and correct mispricing caused by opportunistic noise trading.
The third chapter takes a closer look at one particular type of asset markets -- the over-the-counter (OTC) markets, and analyzes how trade disclosure impacts market participants' optimal game-strategic behaviors. My co-authors and I show that mandatory trade disclosure makes a market intermediary engage in costly signaling, which reduces transaction prices for investors and equivalently rent per transaction for the intermediary. Investors as a result benefit, and are more likely to trade. The intermediary, however, could benefit too if the increase in trading volume is sufficient to offset the reduction in rent per transaction
Three Essays on Sovereign Default and Robust Policy Design
No full textChapter 1 discusses the optimal fiscal response of a small open economy to business cycle fluctuations at the presence of sovereign default risks. The most recent sovereign debt crisis in Europe has demonstrated that the risk of sovereign default is not a problem in developing economies only. However, empirical studies show that fiscal policy tends to be countercyclical or acyclical in developed small open economies and procyclical in developing countries. This chapter presents a general equilibrium model with endogenous government spending, external debt financing, and sovereign default decisions for a small open economy. The model shows that developed countries’ acyclical fiscal response to productivity fluctuations can be motivated by their larger size of public sectors, lower demand elasticity of public goods, and lower volatilities of domestic investments relative to foreign investments, compared to their developing counterparts. Along this line, the recently observed fiscal policy graduation in some Latin American countries can be rationalized by the shifts in the characteristics of their public sectors towards developed countries. The model also implies that fiscal austerity is always optimal for countries with sufficiently high debt-to-output ratio, and the optimal consolidation consists of tax hikes, cuts in public consumption but not in public investment.
Based on Chapman, Fang, Li and Stone (2013), Chapter 2 studies the effect of new official bailouts on capital markets when borrowing countries economic state is private information. We first analyze a game-theoretical model of crisis lending that incorporates bargaining, compliance and enforcement. The presence of asymmet- ric information yields two interesting scenarios. There are conditions under which lending reduces the risk of a deepening crisis and reduces the risk premium demanded by market actors. On the other hand, the political interests that make lenders willing to lend weaken the credibility of commitments to reform, and the act of accepting an agreement reveals unfavorable information about the state of the borrower’s economy. The net “catalytic” effect on the price of private borrowing depends on whether these effects dominate the beneficial effects of the liquidity the loan provides. Decomposing the contradictory effects of crisis lending provides an explanation for the discrepant empirical findings about market reactions, especially with regard to IMF programs. We test the implications of our theory by examining how sovereign bond yields are affected by IMF program announcements, loan size, the scope of conditions attached to loans, and measures of the geopolitical interests of the United States, a key IMF principal.
Based on Li, Narajabad, and Temzelides (2013), Chapter 3 turns to the study of robust policy design when decision makers are concerned about model uncertainty. We study a dynamic stochastic general equilibrium model where agents are concerned about model uncertainty regarding climate change. An externality from greenhouse gas emissions adversely affects the economy’s capital stock. We assume that the mapping from climate change to damages is subject to uncertainty, and we adapt and use techniques from robust control theory in order to study efficiency and optimal policy. We obtain a sharp analytical solution for the implied environmental externality, and we characterize dynamic optimal taxation. A small increase in the concern about model uncertainty can cause a significant drop in optimal energy extraction. The optimal tax which restores the social optimal allocation is Pigouvian. Under more general assumptions, we develop a recursive method and solve the model computationally. We find that the introduction of uncertainty matters qualitatively and quantitatively. We study optimal output growth in the presence and in the absence of concerns about uncertainty and find that these can lead to substantially different conclusions
Renewable Technology Adoption and the Macroeconomy
No full textWe study the effect of technological progress on the optimal transition to a renewable energy-fueled world economy. We develop a dynamic general equilibrium model where energy is used as an input in production and can come from fossil or renewable sources. Both require the use of capital, which is also needed in the production of final goods. Renewable energy firms can invest in improving the productivity of their capital stock. The actual improvement is subject to spillovers and involves an opportunity cost. This results in underinvestment in the productivity of renewable energy capital. In the presence of environmental externalities, the optimal allocation can be implemented through a Pigouvian tax on fossil fuel, together with policy that promotes new renewable technologies. We calibrate our model using world-economy data and characterize the transition toward a low carbon economy. We find that it is optimal for renewables to “start small” and pick up their market penetration only later. In the short run, investment is needed mainly to improve productivity in the renewable energy sector. Later, renewable energy contributes by becoming a “modest” engine of economic growth. It takes approximately 150 years before fossil fuel is phased out entirely, resulting in a 2.8 degree Celsius temperature increase
Balancing economic and epidemiological interventions in the early stages of pathogen emergence
Full text linkThe global pandemic of COVID-19 has underlined the need for more coordinated responses to emergent pathogens. These responses need to balance epidemic control in ways that concomitantly minimize hospitalizations and economic damages. We develop a hybrid economic-epidemiological modeling framework that allows us to examine the interaction between economic and health impacts over the first period of pathogen emergence when lockdown, testing, and isolation are the only means of containing the epidemic. This operational mathematical setting allows us to determine the optimal policy interventions under a variety of scenarios that might prevail in the first period of a large-scale epidemic outbreak. Combining testing with isolation emerges as a more effective policy than lockdowns, substantially reducing deaths and the number of infected hosts, at lower economic cost. If a lockdown is put in place early in the course of the epidemic, it always dominates the “laissez-faire” policy of doing nothing
Mercantilism’s Groundhog Day: The U.S.-China Trade War and Some Regional Energy Market Implications
No full textAn expanding trade deficit and mounting concerns over intellectual property rights alongside slow economic growth and rising inequality created a political upheaval in the US that paved the way for anti-trade sentiment and protectionist policies. While this has impacted a broad set of US trading partners across a number of commodities, the relationship between the US and China, the world’s two largest economies, has drawn the most attention. As such, we examine the potential impacts of the US-China trade dispute for US and Northeast Asian economies, with a specific focus on energy markets. In general, barriers to international trade are detrimental to US and global energy security, as they raise uncertainty, harm investment, and harm efficiency, ultimately leading to higher prices. Market depth, which is critical for energy security, can be compromised if policy becomes burdensome for new investments, capital flows, and market participation. Shifts in US-China trade policy will likely drive a reshuffling of the international energy supply portfolio. However, Northeast Asian trading partners that are mutual to the US and China—in particular, Japan, and South Korea—are at risk of being caught in a vortex of expanding collateral damage. That stated, long-run negative implications for the broader international energy market are likely to be mediated as long as the US-China trade rift remains bilateral in its focus. Given the Trump administration’s apparent desire for trade surpluses, we consider it likely that the US will take steps to facilitate greater energy exports. This will carry spillover benefits for global energy markets and enhance energy security more broadly. However, if an implication of a protracted US-China trade war is slower global economic growth, there is a risk that any positive balance of trade impacts from expanding US energy exports will be limited. Therein lies a conundrum: promote growth through more open trade, thereby expanding US energy exports or adopt protectionist measures, thereby compromising trade and diminishing the prospects for expanding US energy exports. We find evidence that tariffs on imported energy-related commodities, such as solar panels, do not appear to be negatively impacting imports due to a shift in the source of imports and counterbalancing policies at the federal, state, and local levels. In the latter case, for example, if direct and/or indirect subsidies to residences for the installation of solar panels encourage demand, then those policies work to offset the negative effects of tariffs. Hence, there appears to be a contradictory approach to policy when it comes to addressing costs. Finally, the recently signed “Phase One” agreement is a positive step toward resolution of the US-China trade dispute, but the road ahead remains rife with challenge. The agreement, given the current energy commodity landscape across crude oil, natural gas and coal, presents some serious logistical challenges. These challenges will ultimately render a positive outcome dependent on the economic health of nations other than China and the US. In particular, meeting the terms of the Phase One agreement will depend heavily upon the broader market’s ability to absorb the increased volumes of crude oil, LNG and coal. Beyond this, a more robust “Phase Two” is not expected until after the 2020 US presidential election, so although the US-China trade dispute may be temporarily relaxed, it is far from settled
- …
