Getting Cars Off the Road: The Cost-Effectiveness of an Episodic Pollution Control Program

Ground-level ozone remains a serious problem in the United States. Because ozone non-attainment is a summer problem, episodic rather than continuous controls of ozone precursors are possible. We evaluate the costs and emissions reductions of a program that requires people to buy permits to drive on high-ozone days. We estimate the demand function for permits based on a survey of 1,300 households in the Washington, DC, metropolitan area. Assuming that all vehicle owners comply with the scheme, the permit program would reduce nitrogen oxides ( $\text{ NO }_{\mathrm{x}}$ ) by 42 tons per Code Red day at a permit price of $75. Allowing for non-compliance by 15 % of respondents reduces the effectiveness of the scheme to 33 tons of $\text{ NO }_{\mathrm{x}}$ per day. The cost per ozone season of achieving these reductions is approximately $9 million (2008 USD). Although year-round measures, such as the Tier II emissions standards, might be preferred on benefit-cost grounds, an episodic permit system might be considered as an interim measure before the Tier II emissions standards are fully reflected in the vehicle fleet.     

Essential data, budget sets and rationalization

According to a minimalist version of Afriat’s theorem, a consumer behaves as a utility maximizer if and only if a feasibility matrix associated with his choices is cyclically consistent. An “essential experiment” consists of observed consumption bundles $(x_{1}, \ldots , x_{n})$ and a feasibility matrix $\varvec{\alpha }$ . Starting with a standard experiment, in which the economist has access to precise budget sets, we show that the necessary and sufficient condition for the existence of a utility function rationalizing the experiment, namely, the cyclical consistency of the associated feasibility matrix, is equivalent to the existence, for any budget sets compatible with the deduced essential experiment, of a utility function rationalizing them (and typically depending on them). In other words, the conclusion of the standard rationalizability test, in which the economist takes budget sets for granted, does not depend on the full specification of the underlying budget sets but only on the essential data that these budget sets generate. Starting with an essential experiment $(x_{1}, \ldots , x_{n}; \varvec{\alpha }$ ) only, we show that the cyclical consistency of $\varvec{\alpha }$ , together with a further consistency condition involving both $(x_{1}, \ldots , x_{n})$ and $\varvec{\alpha }$ , guarantees the existence of a budget representation and that the essential experiment is rationalizable almost robustly, in the sense that there exists a single utility function which rationalizes at once almost all budget sets which are compatible with $(x_{1}, \ldots , x_{n}; \varvec{\alpha }$ ). The conditions are also trivially necessary.     

Restrictions and identification in a multidimensional risk-sharing problem

We consider $H$ expected utility maximizers that have to share a risky aggregate multivariate endowment $X\in {\mathbb {R}}^{N}$ and address the following two questions: does efficient risk-sharing imply restrictions on the form of individual consumptions as a function of $X$ ? Can one identify the individual utility functions from the observation of the risk-sharing? We show that when $H\ge \frac{2N}{N-1}$ efficient risk sharings have to satisfy a system of nonlinear PDEs. Under an additional rank condition, we prove an identification theorem.     

Asymmetric first-price auctions with uniform distributions: analytic solutions to the general case

In 1961, Vickrey posed the problem of finding an analytic solution to a first-price auction with two buyers having valuations uniformly distributed on ${[\underline{v}_{1}, \overline{v}_{1}]}$ and ${[\underline{v}_{2}, \overline{v}_{2}]}$ . To date, only special cases of the problem have been solved. In this paper, we solve this general problem and in addition allow for the possibility of a binding minimum bid. Several interesting examples are presented, including a class where the two bid functions are linear.     

Specification and Aggregation Errors in Environmentally Extended Input–Output Models

This article considers the specification and aggregation errors that arise from estimating embodied $\text{ CO }_{2}$ emissions and embodied water use with environmentally extended national input–output (IO) models, instead of with an environmentally extended international IO model. Model specification errors result from the use of domestic environmental and domestic technology coefficients to estimate emissions or resources that are embodied in international trade. For $\text{ CO }_{2}$ footprints, unacceptably large overestimations arise from using domestic emission coefficients, which are only partly canceled out by using domestic technology coefficients. For water use footprints both specification errors are smaller, but hardly cancel out. Sectoral aggregation errors occur when combining the 129 EXIOPOL industries to 59 EU industries and 10 broad sectors. The latter aggregation creates the largest errors. Spatial aggregation errors arise from combining 43 individual EXIOPOL countries in four broad regions and “the rest of the world”. Substantial, unacceptable errors occur again, now especially in relation to water use.     

Semantics for intuitionistic epistemic logics of shallow depths for game theory

Epistemic logic of shallow depths has been developed by Kaneko–Suzuki using classical logic. In this paper, we adopt intuitionistic logic as the base logic to limit each player’s reasoning to constructive one. The resulting logical system is denoted by IG $_{EF}$ , and we introduce epistemic possible world semantics for IG $_{EF}$ . We show the soundness and completeness of IG $_{EF}$ with respect to this semantics for it. We also show some applications to game theoretical decision making.     

Information and \sigma -algebras

In this work, we clarify the relationship between the information that an agent receives from a signal, from an experiment or from his own ability to determine the true state of nature that occurs and the information that an agent receives from a $\sigma $ -algebra. We show that, for countably generated $\sigma $ -algebras, the larger it is, the larger the information is. The same is true for general $\sigma $ -algebras after the removal of a negligible set of states.     

Outsourcing versus technology transfer: Hotelling meets Stackelberg

We consider a Hotelling duopoly with two firms $A$ and $B$ in the final good market. Both can produce the required intermediate good, firm $B$ having a lower cost due to a superior technology. We compare two contracts: outsourcing ( $A$ orders the intermediate good from $B$ ) and technology transfer ( $B$ transfers its technology to $A$ ). An outsourcing order is equivalent to building an endogenous capacity and it generates a Stackelberg leadership effect for firm $A,$ which is absent in technology transfer. We show that compared to the situation of no contracts there are always Pareto improving outsourcing contracts (making both firms better off and all consumers at least weakly better off), but no Pareto improving technology transfer contracts. It is also shown that if firm $B$ has a relatively large bargaining power in its negotiations with $A,$ then both firms prefer technology transfer while all consumers prefer outsourcing.     

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.’     

Household behavior and individual autonomy: an extended Lindahl mechanism

We present a comprehensive model of household economic decision covering both full cooperation and noncooperation as well as semi-cooperative cases, varying with income distribution and a parameter vector $\theta $ representing degrees of individual autonomy with respect to the public goods. In this model, the concept of “household $\theta $ -equilibrium” is introduced through the reformulation of the Lindahl equilibrium for Nash implementation and its extension to semi-cooperation. Existence is proved and some generic properties derived. An example is given to illustrate. An important benefit of this approach is to allow for a compact and unified investigation of the testable (local) restrictions of household demand. A particular decomposition of the pseudo-Slutsky matrix is derived and the testability of the various models discussed.     

Evaluations of epistemic components for resolving the muddy children puzzle

We evaluate the 3 child muddy children puzzle using the epistemic logic of shallow depths $\text{ GL}_{EF}$ . This system is used to evaluate what components are necessary for a resolution. These components include the basic beliefs of a child, the necessary depths of the epistemic structures, and the observations about the inactions of others added after a stage. These are all given explicitly, and their necessity is examined. We formulate the concept of a resolution as a process of inferences, actions, observations, and belief changes. We give three theorems. The first one gives a specific resolution, in which no common knowledge is involved. The second theorem states that any resolution has length of at least 3. The third theorem shows that the resolution given in the first theorem is minimal in various senses. In this manner, the necessary components for a resolution of the puzzle are evaluated.     

A Random Parameter Model with Onsite Sampling for Recreation Site Choice: An Application to Southern California Shoreline Sportfishing

Estimation of consistent parameter estimates for recreational demand models faces challenges arising from the choice-based nature of the data collected primarily for resource management purposes. As an alternative to randomized respondent-based sampling, choice-based onsite sampling can provide information on actual choices made by a subset of the population where participation has a low incidence. While the literature has shown that under specific restrictions the estimation of choice models from onsite sampling data yields unbiased fixed parameter estimates for the conditional logit model, this result does not carry over to estimation of the random parameter logit model. We propose an estimator for the unbiased estimation of the random parameter model using choice-based data; our estimator uses weights based on information about the level of sampling effort. An empirical application of the standard and weighted discrete choice RUM models to onsite sample data on recreational fishing illustrates the advantages of the proposed estimator. The estimation results indicate the compensating variation associated with an decrease, or increase, of 50 % in expected catch rates for a recreational shoreline sportfishing trip to a man-made structure in southern California is $$-{\$}2.80$$ or $${\$}3.54$$ per trip, respectively.     

Removing biases in forecasts of fishery status

A recent highly cited paper from this journal develops a model predicting maximum sustainable yield ( \(MSY\) ) of a fishery using the historical maximum catch ( \(MaxCatch\) ). The model is parameterized with a small sample of fisheries from the United States, and is subsequently applied globally to estimate the benefits of fishery recovery. That empirical relationship has been adopted for many subsequent high-profile analyses. Unfortunately, the analysis suffers from two important oversights: (1) because the model is non-linear, it suffers from “retransformation bias” and therefore the results significantly understate \(MSY\) and (2) the analysis is parameterized from of a very limited data set and so generalizability of the fitted empirical relationship between \(MSY\) and \(MaxCatch\) to global fisheries is questionable. Here, we rectify both oversights and provide an updated estimate of the relationship between \(MSY\) and \(MaxCatch\) .     

Motivating energy suppliers to promote energy conservation

We examine the design of regulatory policy to induce electric utilities to deliver the surplus-maximizing level of energy efficiency services, $e^{*}$ . The rebound effect (whereby increased energy efficiency stimulates the demand for energy) typically renders revenue decoupling insufficient in this regard. The additional financial incentive required to induce $e^{*}$ is shown to vary with such factors as the prevailing price of energy, the magnitude of the rebound effect, the extent of observable energy efficiency investments, and the utility’s objective.     

Forecasting spatially dependent origin and destination commodity flows

We explore origin–destination forecasting of commodity flows between 15 Spanish regions, using data covering the period from 1995 to 2004. The 1-year-ahead forecasts are based on a recently introduced spatial autoregressive variant of the traditional gravity model. Gravity (or spatial interaction models) attempt to explain variation in \(N = n^2\) flows between \(n\) origin and destination regions that reflect a vector arising from an \(n\) by \(n\) flow matrix. The spatial autoregressive variant of the gravity model used here takes into account spatial dependence between flows from regions neighboring both the origin and destinations during estimation and forecasting. One-year-ahead forecast accuracy of non-spatial and spatial models are compared.     

Strategies in the principal-agent model

In this paper, we study the principal-agent problem. It is well known that in continuous-time, it is possible to prove the existence of an equilibrium $ (u^{*},S^{*})$ in a considerably general setting, and however little is known about the strategies themselves. Our goal is to present a universal way to construct these strategies as limiting strategies of a very simple type.     

Liquidity and the marginal value of information

We revisit Kyle’s (Econometrica 53:1315–1335, 1985) model of price formation in the presence of private information. We begin by using Back’s (Rev Financ Stud 5(3):387–409, 1992) approach, demonstrating that if standard assumptions are imposed, the model has a unique equilibrium solution and that the insider’s trading strategy has a martingale property. That in turn implies that the insider’s strategies are linear in total order flow. We also show that for arbitrary prior distributions, the insider’s trading strategy is uniquely determined by a Doob $h$ -transform that expresses the insider’s informational advantage. This allows us to reformulate the model so that Kyle’s liquidity parameter $\lambda $ is characterized by a Lagrange multiplier that is the marginal value or shadow price of information. Based on these findings, we can then interpret liquidity as the marginal value of information.     

Insider trading with product differentiation

This paper investigates the effect of product differentiation on the real and financial decisions of a publicly-owned firm, competing $\grave{a}$ la Cournot with another privately-owned firm. The results show that the degree of product differentiation affects the stock price coefficients (i.e. the market maker’s response to the real signal and to the total order flow signal) and the output of the publicly-owned firm. It also appears to have a detrimental effect on the manager’s profits and compensation scheme. The paper then proposes an extension of the benchmark model to incorporate Cournot and Stackelberg competition between two insiders in the financial market. The type of the financial competition adopted has also an effect on the results of the benchmark model that sometimes depend on the degree of product differentiation.     

On the location of public bads: strategy-proofness under two-dimensional single-dipped preferences

In a model with finitely many agents who have single-dipped Euclidean preferences on a polytope in the Euclidean plane, a rule assigns to each profile of reported dips a point of the polytope. A point $x$ of the polytope is called single-best if there is a point $y$ of the polytope such that $x$ is the unique point of the polytope at maximal distance from $y$ . It is proved that if the polytope does not have either exactly two single-best points or exactly four single-best points which form the vertices of a rectangle, then any Pareto optimal and strategy-proof rule is dictatorial. If the polytope has exactly two single-best points, then there are non-dictatorial strategy-proof and Pareto optimal rules, which can be described by committee voting (simple games) between the two single-best points. This also holds if there are exactly four single-best points which form the vertices of a rectangle, but in that case, we limit ourselves to describing an example of such a rule. The framework under consideration models situations where public bads such as garbage dumping grounds or nuclear plants have to be located within a confined region.