An Analytical Foundation of the Ratio-Dependent Predator-Prey Model

Synopsis In this paper we present a micro ecosystem model whose basic entities are representative prey and predator organisms which behave as if they maximize their net offspring under constraints. In the short-run periods, prices (scarcity indicators) coordinate and determine all biomass transactions and net offspring which directly translates into population growth and thus constitutes the dynamics of the predator-prey relations. For a specific parametric version, our model offers a theoretical foundation of the ratio-dependent predator-prey model with Michaelis-Menten type functional response.     

Efficiency in overlapping generations economies with longevity choices and fair annuities

When individuals can influence their life-expectancies and save in annuities, suboptimal savings result from the lack of incentives to choose the optimal longevity, even when annuity returns can be made contingent to longevity-related choices. Specifically, the golden rule steady state maximizing the representative agent utility cannot be attained as a competitive equilibrium under laissez-faire, even with actuarially fair annuities contingent to longevity-enhancing choices. In order to decentralize through markets the golden rule, longevity-enhancing expenditures need to be taxed if the steady state old-age consumption exceeds the annuitized capital return, and subsidized otherwise—the government budget being balanced through lump-sum transfers or taxes. Interestingly, with positive population growth the expected net contribution is negative when longevity-enhancing expenditures are taxed, and positive when subsidized.     

Ecological threshold and ecological economic threshold: Implications from an ecological economic model with adaptation

This paper investigates ecological threshold and ecological economic threshold by developing an ecological economic model—an extension of a population–resource dynamics model developed by Brander and Taylor (1998). The model reflects three critical issues regarding an ecological economic system: system boundary, non-convexity, and adaptation. The paper elucidates six main findings: ecological economic threshold may come before ecological threshold; the ecological economic threshold may exhibit a highly context-dependent and dynamic nature, which suggests the precautionary principle; markets do not respond sufficiently to maintain resiliency under an external shock as prices do not reflect thresholds; the system can be restored by intervention, even after crossing the ecological economic threshold; various transitional paths are possible in restoring the system; and adaptation affects resilience to a somewhat significant effect which suggests the importance of better information and education. Because of the complexity of the model, I adopt a system dynamics approach for the development and analysis of the model.     

Predator–prey dynamics in general equilibrium and the role of trade

We examine the implications of trade in an economy with two interrelated natural resources, focusing on the case of a simple predator–prey relationship. We derive a three-sector general equilibrium model where production functions are linked via the ecological dynamics of the natural system. Under autarky, this economy exhibits a steady-state equilibrium that overexploits the prey stock, reducing the linked predator population and overall welfare in the absence of harvesting controls. When two economies engage in trade, differences in the dynamics of the two resource systems can become the basis for comparative advantage. In this case, the predator–prey relationship leads to a source of comparative advantage in harvesting prey for a country with a lower autarky steady-state proportion of predators to prey. This feature has not been noticed in the literature and leads to a counterintuitive implication: free trade can help conserve predator and prey stocks in the country with the higher autarkic steady-state proportion of predators to prey. To illustrate the relevance of our analytic findings, we present the stylized empirical example of the effect of Chinook salmon imports on killer whale populations.     

Volatility transmission between Islamic and conventional equity markets: evidence from causality-in-variance test

This study examines whether a volatility/risk transmission exists between the Dow Jones Islamic stock and three conventional stock markets for the United States, Europe and Asia during the pre- and the in- and post-2008 crisis periods. It also explores the volatility spillover dynamics between those markets and US Monetary policy, oil prices, global financial risk and uncertainty factors. The recently developed Hafner and Herwartz (2006)’s causality-in-variance test provides evidence of risk transfers between these seemingly different equity markets, indicating a contagion between them during the full sample and the subperiods. The volatility structure of these markets is dominated by short-run volatility in the first period and by high long-run volatility in the second period. The volatility impulse response analysis indicates a similar volatility transmission pattern although it is characterized by a more volatile and short-lived structure in the second period. It also appears that the Islamic equity market responds to shocks from the risk factors and not from the oil price and the US economic policy uncertainty index during both periods.     

Microfoundations,Minsky and Classical Political Economy

The microfoundations discourse originated as a critique of modelling abstracted from theory, in the sense of an explanation of the economic decisions that are supposed to give rise to particular economic outcomes. However, reduction of theory to individual choices and optimisation, integrated by prices and markets, overlooks the key role played by the circular flow of income in integrating individual choices, noted by Schumpeter and Marx, and the key distinction between households and firms that underlies Keynesian macroeconomics and the theories of Minsky, because the expenditure decisions of firms determine aggregate incomes.     

Fiscal policy and default risk in emerging markets

Emerging market economies typically exhibit a procyclical fiscal policy: public expenditures rise (fall) in economic expansions (recessions), whereas tax rates rise (fall) in bad (good) times. Additionally, the business cycle of these economies is characterized by countercyclical default risk. In this paper we develop a quantitative dynamic stochastic small open economy model with incomplete markets, endogenous fiscal policy and sovereign default where public expenditures and tax rates are optimally procyclical. The model also accounts for the dynamics of other key macroeconomic variables in emerging economies.     

Pricing the ecosystem and taxing ecosystem services: A general equilibrium approach

In an integrated dynamic general equilibrium model of the economy and the ecosystem humans and other species compete for land and prey biomass. Each submodel exhibits a price-driven competitive allocation mechanism, and the endogenously determined habitat is either openly accessible or privately owned. In both scenarios specific corrective taxes or subsidies are needed to internalize ecosystem externalities. An open access habitat causes additional inefficiencies through diverging prices for biomass and land in both subsystems. Values of all ecosystem components are determined in an efficient steady state clarifying the role and the interplay of ecosystem prices and economic prices.     

Consumer welfare effects of increased food and energy prices

In this study, the authors evaluated how much price changes in food and energy – two basic living expenditures competing for consumers’ budgets – would affect consumer welfare. We first estimated a US complete demand system to quantify the interdependent demand relationships among 11 categories of consumption expenditures. Among the estimates, the own price elasticities of both food and energy are relatively inelastic, a finding that explains the dynamics of the recent soaring food and energy prices. The estimated demand elasticities were then incorporated into the measurement of Hicksian compensating variation to analyse the consumer welfare effects of price changes in food and energy. The results indicated that an increase in food and energy prices would increase compensated expenditures or incur a substantial consumer welfare loss, creating an especially heavy burden for low income households.     

The quantification and valuation of ecosystem services

This paper explores differences between economic and ecological criteria for identifying, measuring, and evaluating ecosystem services. It argues that economic stakeholders (user groups) generally do well in identifying these services and assigning prices to them. These prices arise spontaneously in—and serve to coordinate—market activity related to the environment. The relevant ecological information which markets gather and apply tends to be dispersed, contingent, particular, local, transitory, and embedded in institutions and practices. Ecologists and other scientists, in contrast, often seek to understand how ecosystems work and which populations and processes provide ecosystem services. The knowledge science seeks, unlike the information markets gather, tends to be centralized, collaborative, collective, and consensus-based; science pursues concepts and principles that are timeless and general rather than ephemeral and site-specific. The paper contrasts the dispersed and decentralized information organized by markets with the collective and centralized knowledge characteristic of science. The paper argues that the conceptual distance between market-based and science-based methods of assembling information and applying knowledge defeats efforts to determine the “value” of ecosystem services in any integrated sense.     

An experimental analysis of the effects of automated mitigation procedures on investment and prices in wholesale electricity markets

In this paper we report the findings of an economic experiment that examines the effects of an automated mitigation procedure (AMP) on prices and capacity investment choices of suppliers in a wholesale electricity market. Specifically, we examine the effects of different market power incentives on markets with and without an AMP. While we find that the AMP does not affect overall investment in capacity, the most significant determinant of long-run prices is investment in new capacity. The AMP also does not reduce long-run prices relative to markets without an AMP. Furthermore, our participants successfully manipulated the AMP’s trigger price. The data and a sample copy of the instructions are available upon request. This article reflects the opinions of the authors and does not necessarily reflect the position of the Federal Energy Regulatory Commission or any individual Commissioner.     

Global Integration of Central and Eastern European Financial Markets—The Role of Economic Sentiments

This paper examines the importance of different economic sentiments for the Central and Eastern European countries (CEECs) during the transition process. We first analyze the importance of economic confidence with respect to the CEECs' financial markets. Since the integration of formerly strongly‐regulated markets into global markets can also lead to an increase in the dependence of the CEECs' economies on global sentiments, we also investigate the relationship between global economic sentiments, domestic income, and share prices. Applying a restricted cointegrating VAR (CVAR) framework, which allows us to distinguish between the long‐run and the short‐run dynamics, our results for the short run suggest that economic sentiments are influenced by share prices but also offer some predictive power with respect to the latter. What is more, European sentiments play an important role in particular for the CEECs' income and sentiments.     

ELDERLY ASSETS, MEDICAID POLICY, AND SPEND-DOWN IN NURSING HOMES

Recent economic research has suggested that Medicaid long-term insurance may reduce the personal savings levels of elderly citizens. This analysis shows that the opposite behavior, due to welfare aversion, actually happens. Barring any behavioral effects, personal wealth and income alone should determine the length of time an individual must stay in a nursing home until spend-down occurs. Wealth and income data from two different samples of the elderly are used to predict the distribution of time until spend-down, which is then compared with the actual distribution of the time until spend-down among residents of nursing homes. Contrary to expectations, it appears that the elderly receive transfers to avoid Medicaid eligibility. This result cannot be explained away by sample selection, demographics, or uncertainty about prices. One implication of this result is that Medicaid could expand eligibility by raising the asset limit without dramatically increasing expenditures or the number of residents who spend-down.     

Pushing the boundaries of climate economics: critical issues to consider in climate policy analysis

Climate policy choices are influenced by the economics literature which analyses the costs and benefits of alternative strategies for climate action. This literature, in turn, rests on a series of choices about: the values and assumptions underlying the economic analysis; the methodologies for treating dynamics, technological change, risk and uncertainty; and the assumed interactions between economic systems, society and the environment, including institutional constraints on climate policy. We identify and discuss such critical issues, pushing at the boundaries of current climate economics research. New thinking in this area is gathering pace in response to the limitations of traditional economic approaches, and their assumptions on economic behaviour, ecological properties, and socio-technical responses. We place a particular emphasis on the role of induced technological change and institutional setups in shaping cost-effective climate action that also promotes economic development and the alleviation of poverty.     

Have food and financial markets integrated?

This article analyses comovements and discusses possibly greater market integration between aggregate food commodity and stock prices in the period 1990 to 2012. Return correlations, price return distributions, cointegration and Granger-causalities are tested in subsamples on monthly FAO Food Price Index and MSCI World Stock Market Index. Empirical results suggest that while there is only weak indication of greater comovements concurrent with structural changes such as changed agricultural policies, new demand due to growth in emerging markets and energy mandates and the financialization of food markets since the early 2000s, they did start to increase substantially in particular during the financial stress of the Lehman crisis and the Great Recession. While structural changes may have amplified price linkages across markets, results do not suggest that they are the key factors for greater price comovements. Instead, the effects of the late-2000s recession as a time of great economic weakness and uncertainty may have changed concurrently the behaviour of both food and financial market participants, such that different market prices exhibit large comovements.     

FUEL TAXES AND COINTEGRATION OF ENERGY PRICES

Creating a successful energy tax policy requires understanding the markets that the energy policy targets. This paper analyzes coal, natural gas, and oil markets to determine the extent to which these fuel prices move together. Results indicate that a stable long-run relationship between coal and oil prices existed until 1974 and that this relationship changed after 1974. The long-run relationship between coal, natural gas, and oil prices implies that a single fuel tax in these markets would not be effective as a single tax policy. Similarly, an equal percentage tax on these energy sources, which does not change relative prices initially, would not keep relative prices unchanged in the long run. Energy policy must take account of the long-run relationship between different energy prices. Otherwise, the long-run results of energy policy could be quite different than intended .     

Modelling price pressure in financial markets

We present experimental evidence that, unlike traditional assumptions in economic theory, security prices do not respond to pressure from their own excess demand. Instead, prices respond to excess demand of all securities, despite the absence of a direct link between markets. We propose a model of price pressure that explains these findings. In our model, agents set order prices that reflect the marginal valuation of desired future holdings, called “aspiration levels.”In the short run, as agents encounter difficulties executing their orders, they scale back their aspiration levels. Marginal valuations, order prices, and hence, transaction prices change correspondingly. The resulting price adjustment process coincides with the Global Newton Method. The assumptions of the model as well as its empirical implications are fully borne out by the data. Our model thus provides an economic foundation for why markets appear to search for equilibrium according to Newton’s procedure.     

Social benefit expenditures and stagflation: evidence from the United States

Stagflation refers to the terrible economic malaise associated with declining growth, hyperinflation and high unemployment. Unlike previous cost-push explanations such as an overheated labour market and oil prices, this article suggests that social benefit expenditures are a potential cause of stagflation. We investigate the impact of social benefit expenditures on stagflation in the U.S. over the 1950–2014 period by employing an autoregressive distributed lag (ARDL) bounds testing approach to cointegration, which was developed by Pesaran, Shin, and Smith. The influence of social benefit expenditures on economic growth and inflation and unemployment rates is estimated. The empirical results from the U.S. suggest that economic growth responds negatively to social benefit expenditures, while inflation and unemployment rates are both positively associated with social benefit expenditures. Thus, government-led rigid welfare could contribute to stagflation in the U.S. Instead of increasing people’s happiness, the over-burdened welfare system could push people into economic malaise. This stagflation risk shouldn’t be ignored. These results are important for U.S. policymakers and can inform other governments characterized by high levels of well-being.     

Gains From Price Rigidity

This paper shows that there are substantial gains from price rigidity in an imperfectly competitive economy. Firms can increase their profits by agreeing some markets as markets of long-term contracts, of which prices are determined in advance to other spot market prices. Although they determine prices non-cooperatively in both markets, the mutual commitment making some markets' prices predetermined induces a price–price spiral between firms, which results in substantial gains for both firms. These gains outweigh the cost of inflexibility arising from price rigidity even though demand fluctuation is large and marginal cost is increasing.
JEL Classification Numbers: E30, E32.     

Switching the lights off: The impact of energy tariff increases on households in the Kyrgyz Republic

This paper describes an analysis of the impact that higher energy tariffs would have on households in the Kyrgyz Republic using micro-data from the 2009 Kyrgyz Integrated Household Survey. This analysis was conducted to determine which households would be most affected by higher energy tariffs and to what extent mitigation measures, such as lifeline tariffs or direct cash transfers, might lessen the impact for poor and vulnerable households. The analysis focused on first-order effects and used benefit incidence analysis and static micro-simulation to estimate the expected costs and benefits of higher energy prices and the corresponding mitigation measures. The results suggest that both the type of energy and the level of connectedness matter. Increasing tariffs for thermal power used for central heating and hot water mainly affects richer households in urban areas. Reducing implicit electricity subsidies affects the entire population due to nearly complete country coverage with electricity connections. Both lifeline tariffs and direct cash transfers could mitigate the effect of higher electricity tariffs at lower costs than universal subsidies.