Auctions for PURPA purchases: A simulation study

Competition was introduced into the electric utility industry with the passage of the Public Utilities Regulatory Policy Act (PURPA) of 1978. Increasing interest has appeared in structuring the PURPA purchase market into an auction system. This paper addresses the design issues associated with setting up such markets and introduces a simulation model to study them. The simulation analysis is guided by theoretical issues such as the alleged inefficiency of first-price auctions. We find that efficiency concerns raised about first-price auctions turn out to be less important than simple theoretical concerns would suggest.     

Money in the pure consumption loan model

The purpose of this paper is to show how modern techniques of Temporary competitive equilibrium analysis can be applied to models of the “pure consumption loan model” type. One considers Samuelson's simplest model where traders live two periods and where money is the only store of value. It is proved that a temporary equilibrium exists if price expectations are sufficiently independent of current prices. A stationary market equilibrium is shown to exist if there is a set of traders (i) whose total resources are greater when they are young than when they are old, (ii) who are indifferent between present and future consumption. It is proved that this existence theorem still holds if the economy is sufficiently “close” to an economy which has this property. A stationary market equilibrium is shown to be Pareto optimal if all traders hold positive cash balances. It may be inefficient if this condition is not satisfied, for some traders may then be willing to borrow, which they cannot do in this model.     

Maximizing an equity portfolio excess growth rate: a new form of smart beta strategy?

It has been claimed that, for dynamic investment strategies, the simple act of rebalancing a portfolio can be a source of additional performance, sometimes referred to as the volatility pumping effect or the diversification bonus because volatility and diversification turn out to be key drivers of the portfolio performance. Stochastic portfolio theory suggests that the portfolio excess growth rate, defined as the difference between the portfolio expected growth rate and the weighted-average expected growth rate of the assets in the portfolio, is an important component of this additional performance (see Fernholz [Stochastic Portfolio Theory, 2002 (Springer)]). In this context, one might wonder whether maximizing a portfolio excess growth rate would lead to an improvement in the portfolio performance or risk-adjusted performance. This paper provides a thorough empirical analysis of the maximization of an equity portfolio excess growth rate in a portfolio construction context for individual stocks. In out-of-sample empirical tests conducted on individual stocks from 4 different regions (US, UK, Eurozone and Japan), we find that portfolios that maximize the excess growth rate are characterized by a strong negative exposure to the low volatility factor and a higher than 1 exposure to the market factor, implying that such portfolios are attractive alternatives to competing smart portfolios in markets where the low volatility anomaly does not hold (e.g. in the UK, or in rising interest rate scenarios) or in bull market environments.     

Book Reviews

The evaluative function of local public actors has been exacerbated in recent years with the individualisation of social policies. One of their tasks is to select the appropriate informational basis in order to assess welfare claimants. Amartya Sen's capability approach offers a theoretical and normative framework to analyse this evaluative function. In particular, it insists on the importance of “objectivating” people's preferences with reference to their capabilities. The weight that is to be attached to individual preferences in the course of public action can be a matter of controversy. Claimants “capability for voice”, we argue, should be developed. This capability refers to their effective possibility to express their concerns with regard to the choice of the informational basis. It is argued that local institutions prohibiting capability for voice will produce adaptive preferences, whereas procedural institutions promoting reflexive public evaluation and capability for voice will result in a fairer wording of individual preferences. At a situated level, the way to connect subjective and objective information when assessing people very much depends on the position of the evaluator. Several illustrations show that the fairness of evaluation, and its impact on the people's capability set, depend on this positional perspective.     

Ethical Issues in Financial Activities

The financial sector likes to call itself a "service industry". As such, its role is to guarantee the fluidity of transactions which are essential to economic activity by ensuring the best possible use of available capital. If finance is a service activity, it is important to specify what services it renders, to whom, in return for what, and for what purpose. In the absence of such clarification, finance may slide out of control and be left at the mercy of mass enthusiasm or hysteria. This document, which is the result of work by people who hold senior positions in Geneva's financial sector or are external observers of the financial world identifies the issues and suggests some avenues for possible solutions.     

On Professor Takashi Negishi's contributions to economic theory

Professor Takashi Negishi has made fundamental contributions to economic theory on an extremely broad range of topics. As the editors of this special issue, we feel extremely fortunate that each of us has worked on topics with respect to which Professor Negishi's influences have been particularly large. In this introductory article, each of us will discuss Professor Negishi's influence on the topic we are most familiar with. For the entire spectrum of his research, readers are referred to the list of Professor Negishi's publications presented at the end of this article.     

Two-stage non Gaussian QML estimation of GARCH models and testing the efficiency of the Gaussian QMLE

In generalized autoregressive conditional heteroskedastic (GARCH) models, the standard identifiability assumption that the variance of the iid process is equal to 1 can be replaced by an alternative moment assumption. We show that, for estimating the original specification based on the standard identifiability assumption, efficiency gains can be expected from using a quasi-maximum likelihood (QML) estimator based on a non Gaussian density and a reparameterization based on an alternative identifiability assumption. A test allowing to determine whether a reparameterization is needed, that is, whether the more efficient QMLE is obtained with a non Gaussian density, is proposed.     

Urban land use allocation and environmental pollution control: An intertemporal optimization approach

This paper deals with long-run, multiperiod strategies of environmental pollution control and allocation of urban land uses. Air pollution generated by the industrial, residential and transportation sectors is taken as representative of the urban environmental quality problem. A comprehensive urban development optimization model is presented, integrating three submodel components for industrial, residential and transportation activities. The analysis focuses on the intertemporal linkages between technological and locational decisions, accounting for land availability, air pollution generation, control and impact, technological change, relocation of activities, land development and redevelopment, and transportation flows and network expansion. The modeling approach is of the cost-effectiveness type: the efficiency criterion is the total intertemporal cost of urban development and operation, and the objectives of the environmental policy are expressed in terms of standards to be respected. The methodology is illustrated by an empirical application to the Haifa metropolitan area.     

Optimal plant location and air quality management under indivisibilities and economies of scale

The implications of indivisibilities and economies of scale on the optimal location of industrial plants and on the optimal choice of their pollution abatement technologies under given air quality standards are examined. Various optimization models, accounting for abatement, land development and plant relocation costs, as well as for locational economies of scale, are developed, using the integer and mixed-integer linear programming framework. A method for computing taxes and subsidies leading the system to the optimal pattern of decisions under decentralized decision-making is proposed. Finally, an application of the approach with real data of the Haifa region is implemented, illustrating the utility of the approach for environmental management.     

A further note on the structure of gas distribution costs in urban areas

This note re-examines the issue of functional form selection in estimating the relationship between gas distribution costs and market and density variables. The study by [Guldmann, 1983], where only linear and log-linear forms were considered, is expanded by using a general functional form based on the Box-Cox transformation. The maximum-likelihood estimated forms turn out to be different from the log-linear ones previously selected, and their implications for economies of scale and density are discussed.