The Welfare Impact of Self-supplied Water Pricing in Canada: A Computable General Equilibrium Assessment

This paper uses a computable general equilibrium model to assess the welfare cost of changing the method of water allocation in Canada towards one that uses prices to ration demand. We model the introduction of a price on both water that is abstracted as well as water that is consumed (that is abstracted, and not returned to the source). We estimate that reducing water consumption by 25 % would require imposition of a price on water consumption of around $$\$0.21/\text{ m }^{3}$$ . Similarly, introduction of a water abstraction charge of about $$\$0.013/\text{ m }^{3}$$ would be sufficient to reduce water abstraction by 25 %. We find that if revenues from water pricing are returned in lump sum to households, the introduction of water pricing would result in a modest welfare loss. When revenues from water pricing are used to offset existing taxes, we find a gain in welfare corresponding to a ‘strong double dividend.’     

Demand for Piped and Non-piped Water Supply Services: Evidence from Southwest Sri Lanka

In many countries water supply is a service that is seriously underpriced, especially for residential consumers. This has led to a call for setting cost recovery policies to ensure that the tariffs charged for water supply cover the full cost of service provision. Identification of factors driving piped and non-piped water demand is a necessary prerequisite for predicting how consumers will react to such price increases. Using cross-sectional data of 1,800 households from Southwest Sri Lanka, we estimate water demand functions for piped and non-piped households using appropriate econometric techniques. The (marginal) price elasticity is estimated at  − 0.15 for households exclusively relying on piped water, and at  − 0.37 for households using piped water but supplementing their supply with other water sources. The time cost elasticity for households relying on non-piped water only is estimated at  − 0.06 on average, but varying across sources. For both piped and non-piped households, we find evidence of substitutability between water from different sources. We discuss the implications of these results in terms of pricing policy.     

Optimal price regulation in a growth model with monopolistic suppliers of intermediate goods

Abstract. In this paper we investigate the trade‐off faced by regulators who must set a price for an intermediate good somewhere between the marginal cost and the monopoly price. We utilize a growth model with monopolistic suppliers of intermediate goods. Investment in innovation is required to produce a new intermediate good. Marginal cost pricing deters innovation, while monopoly pricing maximizes innovation and economic growth at the cost of some static inefficiency. We demonstrate the existence of a second‐best price above the marginal cost but below the monopoly price, which maximizes consumer welfare. Simulation results suggest that substantial reductions in consumption, production, growth, and welfare occur where regulators focus on static efficiency issues by setting prices at or near marginal cost. JEL Classification: D42, D61, D92, O38 Régulation du prix optimal dans un modèle de croissance où existent des fournisseurs monopolistes de biens intermédiaires. Dans ce mémoire, on enquête sur la relation d’équivalence à laquelle les régulateurs doivent faire face au moment de définir le prix quelque part entre le niveau du coût marginal et le niveau du prix de monopole. On utilise un modèle de croissance dans le cas où existent des fournisseurs monopolistes de biens intermédiaires. Des investissements dans l’innovation sont nécessaires pour produire un nouveau produit intermédiaire. La tarification au coût marginal décourage l’innovation alors que la tarification au niveau du prix de monopole maximise l’innovation et la croissance au prix d’une certaine inefficacité statique. On montre que l’existence d’un prix qui est un optimum de second ordre et se situe au‐dessus du coût marginal mais au dessous du prix de monopole maximise le niveau de bien‐être des consommateurs. Des résultats de simulation suggèrent que des réductions substantielles dans la consommation, la production, la croissance, et le niveau de bien‐être se produisent quand les régulateurs sont focalisés sur les problèmes d’efficacité statique et fixent les prix au niveau (ou près du niveau) du coût marginal.     

How resilient is La Réunion in terms of international tourism attractiveness: an assessment from unit root tests with structural breaks from 1981-2015

Even if local policymakers increasingly claim that tourism is one of the key factors of future economic development for the French small island La Réunion, international tourist arrivals are observed to be locked in a stagnation phase since the beginning of the 2000s. Starting from this stylized fact, this article aims to study if this phenomenon results from major external events hurting this economy regularly. Next, by using univariate unit root procedures with structural breaks, we test for evidence of permanent or transitory effects of external shocks on international tourist inflows (total, by source markets, and by category) over the period 1981–2015. Finally, the empirical analysis allows us to reject the null of a unit root. Then, stagnation of tourism arrivals to La Réunion is not due to exogenous shocks but probably results from endogenous impediments within the domestic tourism industry and unsuitable public policies.     

Equilibrium asset pricing under the Lévy process with stochastic volatility and moment risk premiums

In this paper, we extend Zhang, Zhao and Chang's (2012) production-based equilibrium asset pricing model from a jump diffusion setting to a Lévy process with stochastic volatility. This paper is a further extension of Fu and Yang (2012), which is under a Lévy process with a constant volatility. Using newly developed closed-form formulas of equity premium and pricing kernel, we are able to price Schouten's (2005) moment swaps analytically. Numerical results show that our pricing formula performs very well. Our model explains Zhao, Zhang and Chang's (2013) empirical observations on moment risk premiums.     

Weight-based pricing in the collection of household waste: the Oostzaan case

This paper provides an empirical analysis of the effects of weight-based pricing in the collection of household waste. Using a comprehensive panel data set on all households in a Dutch municipality we estimate short-run as well as long-run price effects for the amounts of both compostable and non-recyclable household waste. We find significant and sizeable price effects, with the elasticity for compostable waste being four times as large as the elasticity for non-recyclable waste. Long-run elasticities are about 30% larger than short-run elasticities.     

城市居民生活用水阶梯水价补偿机制研究——基于logistic模型的分析

如何通过在城市居民生活用水中逐步实施阶梯水价政策,是实现水资源合理配置的重要举措之一。基于logistic函数的城市居民生活用水阶梯水价补偿模型研究发现,阶梯水价的定价方法对供水企业利润、城市居民生活用水水价的承受能力都存在重要影响。短期供水企业的利润随着水价上涨而增加;当增加到一定程度,居民节水率不再提高使得用水量不再发生变化,此时供水企业利润会因用水量的减少而降低;当居民保持正常生活用水量时,供水企业的利润最终会保持平衡不再变化。     

History-based price discrimination and entry in markets with switching costs: A welfare analysis

We analyze history-based price discrimination in an asymmetric industry, where an incumbent, protected by switching costs, faces an entrant who does not have access to information about consumers’ purchase histories. We demonstrate that consumer surplus is higher with uniform pricing than with history-based price discrimination. We find that the entry decision is invariant to whether the incumbent implements history-based pricing or uniform pricing. This implies that the potential abuse of market dominance imposed by history-based price discrimination is exploitation, not exclusion. Finally, we establish that the profit gain to the incumbent from history-based pricing exceeds the associated loss to consumers.     

Managing Electricity Risk

In this paper we propose an algorithm for pricing derivatives written about electricity in an incomplete market setting. A discrete time model for price dynamics which embodies the main features of electricity price revealed by simple time series analysis is considered. We use, jointly, Binomial and Monte Carlo methods for pricing under a risk–neutral measure of which we prove the existence.     

Microstructure and asset pricing: An insight on African frontier stock markets

This article investigates the impact of microstructure factors on asset pricing in some African stock markets. We use data on stocks listed on the Johannesburg Stock Exchange, the “Bourse Régionale des Valeurs Mobilières,” and the Nigeria Stock Exchange, and we consider international portfolio management from 2000 to 2014. Generalized least square and fixed effect are estimation methods used to highlight the effect of microstructure variables on expected return. At the same time, panel smooth transition regression (PSTR) modeling is considered to identify the thresholds in this effect. The results show that liquidity and to a lesser extent the number of trading days are the most common significant microstructure variables for all the studied markets. However, other variables’ effects on the return are specific to the considered stock markets. Furthermore, the PSTR estimator reveals that the impact of indicated factors on asset pricing is not linear because it produces a double threshold between return and microstructure.     

Time-varying global and local sources of market and currency risks in Russian stock market

In this paper we study international asset pricing models and the pricing of global and local market risks as well as currency risk in the Russian stock market from an international investors' point of view using weekly data from 1999 to 2009. In our empirical specification, we utilize the multivariate GARCH-M framework of De Santis and Gérard (1998). We find currency risk to be priced in the Russian market. The price of currency risk is found to be time-varying and affected for example by the price of oil. Moreover, our results suggest that the Russian market is partially segmented and the local market risk is priced in the market. Our model implies in-sample risk premium for the Russian equity market that is, on average, almost ten times higher than that of the US and that the Russian risk premium is on average caused mostly by the local and currency risk components.     

Who Faces Higher Prices? An Empirical Analysis Based on Japanese Homescan Data

On the basis of household‐level scanner data (called homescan data) for Japan, we construct a household‐level price index and investigate the causes of price differences across households. We observe large price differentials across households, a result that is consistent with the previous research based on the data in the USA. However, the differences across age and income groups are small. In addition, we find that elderly people face higher prices than the younger ones, which is contrary to the results of the previous research. The most important determinant of the price level is the extent to which households rely on bargain sales; doubling purchases of goods at bargain sales decreases the price level by about 2%, while shopping frequency only has a limited effect on the price level.     

Do small pecuniary incentives motivate residential peak energy reductions? Experimental evidence

This article evaluates demand-side interventions aimed at reducing residential consumption during the peak energy periods. The interventions were applied to a sample of high-income households and included a set of text message reminders advising participants to reduce electricity use during peak hours. One group of participants received accompanying intra-day increases in peak-hour kWh rates, while another group of participants did not receive any price incentives. We find that intra-day price increases, though small in absolute magnitude, produced significant reductions in peak energy use. Reductions in use, as compared to a control group, were significantly higher among the pricing group compared to the group only receiving text messages, suggesting that pricing played a central role in influencing behaviour. Our results contribute to ongoing policy discussion about the effect of dynamic pricing on consumer energy demand.     

WAGE BARGAINING WITH A PRICE-SETTING FIRM

This paper examines the introduction of monopolistic competition into wage bargaining models: in addition to capital-labour substitution, we also consider a cost-push effect. The right-to-manage model requires strong restrictions on the objective functions and leads to problematic conclusions because the wage claims of the union are generally not compatible with the mark-up requirement contained in the firm's price equation. In the efficient bargaining model, the union negotiates also the employment level, which gives it a way of extracting part of the monopoly rent: the firm's commitment to an efficient wage-employment combination forces it to follow a pricing rule such that part of the surplus is transferred to the union.     

A flexible approach to estimate the equity premium

In this article, we estimate the risk aversion for households accounting for their lifetime consumption risk. Households take into account the overall lifetime uninsured consumption risk when optimizing their resources, which based on micro data varies across households. Thus, representing households’ consumption by merging cross-sectional micro data into the single Euler equation (the common approach for estimating risk aversion based on consumption-based asset pricing theory) may be too rough an approximation, leading to biased results with respect to risk aversion. Our results suggest that consumption-based asset pricing models that were rejected in several studies do in fact fit the data when we account for households’ lifetime consumption risk. This finding also has implications for long-run aggregate consumption-based asset pricing models.     

The influence of investment experience on market prices: laboratory evidence

We run laboratory experiments to analyze the impact of prior investment experience on price efficiency in asset markets. Before subjects enter the asset market they gain either no, positive, or negative investment experience in an investment game. To get a comprehensive picture about the role of experience we implement two asset market designs. One is prone to inefficient pricing, exhibiting bubble and crash patterns, while the other exhibits efficient pricing. We find that (i) both, positive and negative, experience gained in the investment game lead to efficient pricing in both market settings. Further, we show that (ii) the experience effect dominates potential effects triggered by positive and negative sentiment generated by the investment game. We conjecture that experiencing changing price paths in the investment game can create a higher sensibility on changing fundamentals (through higher salience) among subjects in the subsequently run asset market.     

股票价格服从不对称跳跃-扩散过程的期权定价模型

经典期权定价公式B—S模型假设股票价格服从连续的几何布朗运动,然而,经验研究表明股票价格常常发生跳跃式的变化,这主要是由于股市上常出现一些重大的事件导致的。通过对期权市场出现的“隐含波动率微笑”现象进行观察和研究,可以发现引起股票价格上升或者下跌的跳跃式变化往往是不对称的。为简单起见,在假设跳跃幅度服从均匀分布假设前提下,初步建立起股票价格服从不对称跳跃-扩散过程期权定价模型。     

Complementarity between water pricing, water rights and local water governance: A Bayesian analysis of choice behaviour of farmers in the Krishna river basin, India

To ensure efficient water allocation and use, policy designers have adopted various strategies, including price setting, decentralising irrigation water management or improving water rights. Most of these strategies have been applied individually, without considering the complementary relationships between them. This paper uses a discrete choice model to analyse the scope for combinations of tools for irrigation water demand management and farmers' acceptance of these. In terms of local irrigation water governance, the presence or absence of collective irrigation water management, in the form of a Water Users Association, is considered. Water rights are specified in terms of the duration and quality of the entitlement and its transferability. Finally, four types of water pricing methods (area, crop, block and volumetric pricing) are considered. Using a choice experiment, we elicit the most preferred water pricing method, under different water rights situations, at different price levels and under various contexts for local irrigation water governance. Our results indicated that under conditions of improved water rights, preference for volumetric pricing increases, whilst the presence of a Water Users Association reduces this preference. Furthermore, it was found that using an appropriate combination of water demand management tools considerably increases the willingness to pay for a change in scenario.     

The Demand for Water by Single-Metered and Group-Metered Households

This paper examines water consumption in group-metered households. A utility-maximising model is developed in which the marginal price schedule is approximated by a polynomial function of water consumption. The model is modified to allow for an incentive for group-metered households to consume more water than if they were separately metered. This occurs if households do not expect their own increase in water consumption to be matched by other households sharing the meter, so that part of the marginal cost of water is shifted to other households. Estimates using Western Australian data are, however, unable to detect any significant effect of this kind, perhaps because the price response itself is small.     

A Socially Efficient Water Tariff Under the English Optional Metering Scheme

We design a socially-efficient water tariff in the institutional context of England, where water metering is largely optional and non-metered households are levied proportional to the rateable value (RV) of their property. Within this context, it is theoretically demonstrated that: the larger the RV, the more likely the household to opt for metering; and the larger the RV, the smaller the Demand Effect of Metering (DEM; the fall in water consumption resulting from metering). These two hypotheses are confirmed with econometric analyses using datasets provided by a water company operating in East Anglia, England. The results signify an adverse-selection problem: wealthier households are more likely to opt for metering, yet they are expected to exhibit a smaller DEM once a meter is installed. In order to overcome this, we propose a two-part tariff for metered households consisting of: a variable charge levied proportional to water consumption at a uniform price; and a progressive standing charge to place a heavier burden on wealthier households. The latter component has a potentially major role in attaining social efficiency of metering, by encouraging poorer households to install meters whilst discouraging wealthier ones. The optimal two-part tariff is determined empirically.