Subsidies for renewable energy in inflexible power markets

This paper analyses how short-term operational efficiency and the \(\hbox {CO}_{2}\) emissions of a power system depend on different subsidies for wind power and on the flexibility of the power system. This is analysed in the framework of a numerical power market model, calibrated to Danish data, where the start-up costs and other constraints in fossil-fuelled power plants are taken into account. The main conclusion is that flexibility is crucial for the costs of integrating wind power in an existing system. If thermal power plants are inflexible, subsidies for wind power should strive to increase the flexibility of the market by passing market signals to wind power. A subsidy that conceals market signals from wind power producers (a production subsidy) or disconnects wind power incentives from the market signals altogether (a fixed price) increases costs considerably. An inflexible power system should aim to introduce optimal subsidies (an investment subsidy) instead of production subsidies or a fixed price. The design of the subsidy scheme should take into account both the characteristics of the existing system and the characteristics of renewables.     

Playing at markets: A New Austrian perspective on macroeconomic policy

The New Austrian (also called Neo-Mengerian) paradigm emphasizes the importance of nonequilibrium and emergent processes in explaining the social world. In this paper I analyze macroeconomic policy from a New Austrian perspective. I define macroeconomic policy broadly, encompassing not only policy relating to business cycles and growth, but to any policy aimed at directly manipulating emergent variables. Such policy is fundamentally incoherent, since it attempts to divorce social outcomes from the processes that generate them and give them meaning. A New Austrian approach to macroeconomic policy, which focuses on the rules structuring nonequilibrium-emergent social processes, avoids this problem.     

The role of labor markets for euro area monetary policy

In this paper, we explore the role of labor markets for monetary policy in the euro area in a New Keynesian model in which labor markets are characterized by search and matching frictions. We first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy. We find that while a lower degree of wage rigidity makes monetary policy more effective, i.e. a monetary policy shock transmits faster onto inflation, the importance of other labor market rigidities for the transmission of shocks is rather limited. Second, having estimated the model by Bayesian techniques we analyze to which extent labor market shocks, such as disturbances in the vacancy posting process, shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations. Our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations. In sum, the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy.     

Trade policy with asset markets: The role of financial structure for time consistency

The present study uses a two-country, two-good, stochastic general equilibrium trade model to analyze the implications of optimal trade policy under uncertainty in the presence of financial markets. Using such a framework, I demonstrate that the policy-active home government, acting to maximize domestic welfare, will always have incentive to revise the previously announced import tariff policy once an asset position is taken by the representative agent in each country engaged in trade. The resulting time-consistent solution will be sensitive to the composition of asset income. Since the fiancial contracts can be combined in an infinite number of ways to yield the same optimal level of asset income, there will exist multiple time-consistent solutions, one for each financial structure. Using a specific log utility function, I also show that for certain financial structures, precommitment solutions will be replicated by time-consistent solutions, a result which marks a significant departure from the standard deterministic framework.     

Competition and price dispersion in the airline markets

We use two ticket-level data sets on one-way domestic flights for the US airlines to examine the potentially nonlinear relationship between price dispersion and three forms of competition: inter-firm, inter-flight and frequency competitions. The linear relationship is rejected at any conventional significance levels. In particular, there is an S-shaped relationship between market concentration and price dispersion. This can be a reason for the mixed results in the literature. Roughly speaking, the inter-flight and frequency competitions have opposite effects on price dispersion. Finally, in general, the size of aircraft has a positive effect on price. However, for very large aircraft, the relationship becomes negative.     

Geographic price dispersion in retail markets: Evidence from micro-data

Using an extensive micro-price data of 266 retail goods and services across US, EU and OECD cities between 1990 and 2005, we study characteristics of geographic dispersion of deviations from the Law of One Price. We find that the magnitude of price dispersion is a function of the characteristics of both the type of good and set of locations under examination. Higher share of non-traded inputs and lower tradability of goods are both found to contribute to geographic price dispersion, with the former typically dominating in explanatory power. The role of tradability of good in accounting for the price dispersion is more significant as we move beyond an economic geography, while non-traded input level matters relatively more if we move to the interior of this geography. Our evidence suggests that the models of real exchange rates should incorporate the classical distinction between traded inputs and local inputs as well as a role for relative markups and traditional trade costs.     

Law of the jungle: firm survival and price dynamics in evolutionary markets

In this paper I develop a simple, and general model of supply and demand within which almost any theory of consumer and producer behaviour may be integrated by varying parameters. I then investigate the dynamics of this model and its implications for the theory of market evolution, and show that it unifies a number of insights from evolutionary economics. I extend upon these evolutionary theories and also characterise the distribution of prices across the market and investigate its evolution over time.     

The price of energy and potential growth of developed countries: An attempt at quantification

A growth model based on a theoretical discussion of the impact of oil prices on developed countries is used to predict the impact of higher prices of energy on the growth of developed countries. The results suggest that the growth impact is small, that domestic price policies may have a large impact on oil imports, and that the investment of foreign assets accumulated by oil producers may make a significant contribution to the GNP of OECD.     

The role of excess capacity in determining market power in natural gas transportation markets

The approval by FERC of a regulated natural gas pipeline’s market-based rate application depends upon the availability of substitute pipelines with sufficient capacity to maintain the current transport price. But how much alternate capacity is enough? Clearly, the price will not increase when alternate pipelines have unsubscribed capacity equal to the capacity of the applicant pipeline, since the applicant’s capacity is then perfectly substitutable. And indeed, FERC has approved market-based rates when this “complete-replacement” criterion has been met. However, complete-replacement is too stringent a condition and we determine precisely how much alternate capacity suffices to keep the price from rising.     

Competing at the frontier: The changing role of technology policy in Singapore's economic strategy

For an economy competing at the global frontier, an innovation-based growth strategy requires a well-developed technological infrastructure, a set of capabilities-focused technology policies, as well as an institutional environment that stimulates innovation and entrepreneurship. This paper examines the role played by science and technology policy in an economy's transition to an innovation-based growth strategy. We discuss the challenges governments face as they restructure economic institutions to deepen R&D capabilities and encourage technology creation. We review Singapore's experience in this regard and assess its ongoing efforts to remake itself to compete at the global frontier.     

Responses of international stock markets to oil price surges: a regime-switching perspective

We propose an enhanced regime-switching model to investigate the relationships between oil price surges and stock market cycles in five oil-dependent countries. Our model accounts for the joint effects of the West Texas Intermediate (WTI) and Brent oil markets and simultaneously captures asymmetry, volatility persistence and regime shifts contained in the underlying financial data. We find that stock market returns strongly exhibit a regime-switching behaviour, but they react differently to the increases in the price of oil. More precisely, the conditional volatility of studied stock markets during the bear market phases is found to be less affected by oil price surges than during the bull market phases. Whether the effects of oil shocks are positive or negative depends greatly on the degree of reliance on imported oil, the share of the cost of oil in the national income and the degree of improvement in energy efficiency of a given country. Finally, the relatively opposite effects of the WTI and Brent oil markets suggest the potential of substitution between them as well as the necessity of a diversification strategy of oil supply sources.     

Dynamic price dependence of Canadian and international art markets: an empirical analysis

Although the market for Canadian paintings is now of substantial magnitude, with several works having recently been sold for well over a million dollars, it remains true that with very few exceptions, the works of Canadian painters are bought and sold only in Canada and seem to be held only by Canadian collectors. This market can thus be viewed as largely local, and it is therefore not clear whether there should be any linkage between price movements for Canadian art and those for the mainstream international market in old master, impressionist, and modern art. This article investigates the presence and nature of such time series dependence econometrically, both in terms of long-term trends as reflected in the co-integrating relationship between Canadian and the international market, and in terms of short-run co-movements as represented in correlations. The possibility that the local market ??follows?? the international one is also considered through an analysis of Granger causality. For Canadian art prices, we use a new hedonic index that has been computed using an updated version of the dataset of Hodgson and Vorkink (Can J Econ 37:629?C655, 2004), while for the international prices, we use an index provided by Mei and Moses (Am Econ Rev 92:1656?C1668, 2002).     

An experimental investigation of soft price caps in uniform price auction markets for wholesale electricity

This paper presents the results from an auction experiment using industry professionals and student participants who compete in a simulated wholesale market for electricity. Motivated by the intervention by FERC in response to the “meltdown” of the California spot market, we investigate the effect of including a “soft” price cap in a uniform price auction as a means of mitigating high prices. When prices are driven above the soft cap, offer curves become flat, in contrast to the hockey stick shape observed in a typical uniform price auction for electricity. This flat offer curve leads to market prices that are relatively insensitive to both generation costs and demand reductions.      

Asymmetric price transmission in the US and German fuel markets: a quantile autoregression approach

This paper proposes a new econometric model for asymmetric price transmissions. We estimate long-run equilibrium equations between upstream and downstream     

Solar energy and the national energy dilemma : A model for policy evaluation

This study presents solar-enhanced energy scenarios for the future together with the policy considerations they imply. The methodology known as system dynamics is employed, and the work reported here builds on an earlier model developed by Sasser.Policy-related implications include the following. First, after-tax costs of solar technology must be competitive with the costs for coal as well as those for oil and gas to achieve a substantial market penetration. Second, the collapse predicted by the original Sasser model used in this study can be postponed by solar technology alone but not avoided. If solar technology is allowed to supply nearly 100% of the energy needs of each energy consumption sector, then each sector is allowed 100 years more growth before the inevitable collapse occurs. Third, the amount of imported crude oil that can be displayed by solar energy in the next two decades of this century is modest.     

Testing the law of one price in food markets: evidence for Colombia using disaggregated data

This article applies stationarity tests to examine evidence of market integration for a relatively large sample of food products in Colombia. We find little support for market integration when using the univariate KPSS tests for stationarity. However, within a panel context and after allowing for cross-sectional dependence, the Hadri tests provide much more evidence supporting the view that food markets are integrated or, in other words, that the law of one price holds for most products.     

The impact of bargaining on markets with price takers: Too many bargainers spoil the broth

In this paper we study how bargainers impact on markets in which firms set a list price to sell to those consumers who take prices as given. The list price acts as an outside option for the bargainers, so the higher the list price, the more the firms can extract from bargainers. We find that an increase in the proportion of consumers seeking to bargain can lower consumer surplus overall, even though new bargainers receive a lower price. The reason is that the list price for those who do not bargain and the bargained prices for those who were already bargaining rise: sellers have a greater incentive to make the bargainers’ outside option less attractive, reducing the incentive to compete for price takers. Competition Authority exhortations to bargain can therefore be misplaced. We also consider the implications for optimal seller bargaining.