Indivisible labor implies chaos

Summary. We study a simple infinite horizon model with indivisible labor. We characterize the optimal plans under the assumptions that and that , where R is the gross interest rate and is the discount factor. We show that under those assumptions, optimal plans are almost always asymptotically nonperiodic unless initial wealth is excessively small or large. Received: May 25, 1999; revised version: June 24, 1999     

Characterization of optimal plans for stochastic dynamic programs

This paper provides general techniques for the characterization of optimal plans resulting from stochastic dynamic programming. We show that under standard assumptions the optimal plans in both finite and infinite horizon problems can be obtained by an application of the Implicit Function Theorem to first order conditions. Further, we show that under certain checkable conditions, optimal plans and value functions are p-times differentiable for any integer p ? 0. Finally, we apply our technique to obtain a C^p plan and value function in a one sector infinite horizon growth problem under uncertainty.     

Randomization and simplification in dynamic decision-making

Randomization adds beneficial flexibility to the construction of optimal simple plans in dynamic environments. A decision-maker, restricted to the use of simple plans, may find a stochastic plan that strictly outperforms all deterministic ones. This is true even in noninteractive deterministic environments where the decision-maker's choices have no influence on his signals nor on the future evolution of the system. We describe a natural decomposition of simple plans into two components: an action selection rule and a behavior modification rule. In noninteractive environments optimal simple plans do not require randomization in the action selection rule. Only randomization in the behavior modification rule may be necessary.     

Political competition in a model of economic growth: Some theoretical results

Summary We analyze the role of political competition on the type of economic policies that are selected in a one sector model of economic growth. We identify conditions under which neoclassical optimal growth plans occur, and conditions in which political business cycles occur. We find that the ability commit to multiperiod economic policy leads to less political stability of economic plans.Support for this research was provided in part by NSF grant #SES-9022932 to the California Institute of Technology. We are grateful to a referee for pointing out that our results could be extended to supra majority rules, as in Proposition 1.     

Optimal Decisions on Pension Plans in the Presence of Information Costs and Financial Literacy

Pension reforms are on the political agenda of many countries. Such reforms imply an increasing responsibility on individuals’ side in building an efficient portfolio for retirement. In this paper, we provide a model describing workers’ choices on the allocation of retirement savings in presence of (1) mandatory pension contribution; (2) different pension plans; and (3) information costs and financial literacy investment decisions. In particular, we characterize the results from both a positive and normative standpoint, by highlighting the determinants of individuals’ choice, with special focus on information costs, on the role of income and preferences, and by characterizing the optimal contribution rate to mandatory complementary pension plans. We also introduce endogenous financial literacy and analyze how its optimal level is determined and how it affects the decisions on pension plans.     

Time substitution for environmental performance: The case of Swedish manufacturing

We extend recent advances in time substitution modeling to a directional distance function framework, in order to examine the environmental performance of firms in Sweden’s pulp and paper industry for the years 2002–2008. Our data allow us to estimate the optimal reallocation of environmental investments, expenditures and energy use to simultaneously maximize production output and minimize emissions in the years immediately before and after the implementation of the European Union Emissions Trading Scheme. We find some evidence of overall productivity decline when considering both emissions and output objectives, due primarily to technological decline, and that cumulative dynamic inefficiency outweighs static inefficiency. A comparison of optimal investment with observed investment indicates that firms could have improved their performance by reallocating environmental investments to early periods and production-oriented investment to later periods.     

Regional and copula estimation effects on EU and US energy equity portfolios

ABSTRACT

The aim of this paper is to investigate the regional interdependence structure of energy equities in the US and in the EU. Based on weekly stock prices of 28 big energy firms in the two regions from 2008 to 2019, we compare the efficiency of using bivariate or multivariate copulas to describe the dependence structure of energy equities. Furthermore, we investigate the impact of the choice between these two methods on the performance of energy equity portfolios. Our empirical results show that multivariate copulas, such as C-Vine, allow to better describe the dependence structure of energy equities. We also find that there is a stronger and more complex dependence structure among EU energy equities than among US energy equities. Our scenario analysis also shows that the dependence structure is stronger during the GFC while being weaker during the ESDC. More importantly, the correlation matrix obtained from the multivariate copula method allows to obtain optimal mean-CVaR portfolios with a higher performance than that from the bivariate copula method. More importantly, optimal portfolios constituted with multivariate copulas allow to reduce the portfolio’s sensitivity to oil prices.     

Commitment and discretion in contracts: theory and evidence from retirement plans*

We consider a firm's problem of incentivizing its workforce through relational contracts, when workers effectively face a shorter time horizon due to possible separation shocks. Commitment issues then generate a trade-off between efficiency and distribution, which affects both performance and profits. Profits under relational contracting can exceed those under formal contracting, despite lower performance, when discounting is moderate, firm bargaining power is weak, and shocks are likely. Using a matched employer–retirement plan dataset, and interpreting discretionary profit-sharing plans and employee stock ownership plans as relational and formal contracting, respectively, we find some support for our predictions.     

Optimal detection strategies for an established invasive pest

We model optimal detection of sub-populations of invasive species that establish ahead of an advancing front. For many invaders, eradication of the main population is an untenable goal, yet it may be possible to treat and eradicate emerging sub-populations once these sub-populations are detected. We embed a dynamically optimal post-detection management plan of sub-populations into a model of optimal detection effort determination and find that optimal detection effort depends, in part, on the distance from the main front: locations closer to the front with shorter management horizons enjoy lower reductions in overall cost from intervention. The uninfested landscape is divided into two zones, characterized by different dynamically optimal management plans: a suppression zone and an eradication zone. In the suppression zone, optimal detection effort increases with distance from the front. At the distance where the suppression zone yields to the eradication zone, optimal detection effort plateaus at its maximum level.     

Electricity provision with intermittent sources of energy

We analyze the interaction between a reliable source of electricity production and intermittent sources such as wind or solar power. We first characterize the optimal energy mix, emphasizing the availability of the intermittent source as a major parameter for the optimal investment in capacity. We then analyze decentralization through competitive market mechanisms. We show that decentralizing the efficient energy mix requires electricity to be priced contingently on the availability of the intermittent source. By contrast, traditional meters impose uniform pricing, which distorts the optimal mix of energy sources. Decentralizing the efficient energy mix with uniform prices requires either cross-subsidies from the intermittent source to the reliable source of energy or structural integration of the two types of technology.     

Reversing disbursement rates to estimate stationary wealth processes for endowments with recursive preferences

Endowments have been accused of hoarding their wealth. However, the theoretically ideal spending plan remains unclear and, in practice, endowments follow a range of rules. Here we derive and estimate the optimal spending plans of an infinitely lived charity or endowment with an Epstein-Zin-Weil utility function, given general Markovian returns to wealth. We analyse two special cases: first, where spending is a power function of last period’s wealth; and second where the endowment uses ‘payout smoothing’. Via non-linear least squares, we estimate the optimal spending rate and the elasticity of inter-temporal substitution for an endowment with a typical diversified portfolio and for a portfolio of hedge funds. In a new approach, we use maximum entropy methods to characterize the returns distribution of an endowment whose spending plan conforms with the optimality condition. We confirm that the estimated returns distribution is largely consistent with the optimal spending plan.     

Mineral resources for renewable energy: Optimal timing of energy production

The production of energy from renewable sources is much more intensive in minerals than that from fossil resources. The scarcity of certain minerals limits the potential for substituting renewable energy for scarce fossil resources. However, minerals can be recycled, while fossil resources cannot. We develop an intertemporal model to study the dynamics of the optimal energy mix in the presence of mineral intensive renewable energy and fossil energy. We analyze energy production when both mineral and fossil resources are scarce, but minerals are recyclable. We show that the greater the recycling rate of minerals, the more the energy mix should rely on renewable energy, and the sooner should investment in renewable capacity take place. We confirm these results even in the presence of other better known factors that affect the optimal schedule of resource use: expected productivity growth in the renewable sector, imperfect substitution between the two sources of energy, convex extraction costs for mineral resources and pollution from the use of fossil resources.     

投资清洁能源技术 促进经济绿色增长

当前,全球同时面临两个重大挑战：尽快走出经济危机和应对能源供应和气候变化安全,实现向低碳的过渡。全球向低碳的过渡将催生能源技术革命。为促进经济恢复,世界主要经济体都实施了经济刺激计划。清洁能源技术是刺激计划投资的重点之一。本文在已有公开文献的基础上,总结了能源技术革命的主要内容、清洁能源技术对促进经济绿色增长的作用和主要经济体刺激计划对清洁能源投资的重点。分析了金融和经济危机对清洁能源技术发展的影响,提出实施综合技术政策,以能源技术革命促经济绿色增长。试图回答如何将迎接能源技术革命和促进经济恢复结合起来的问题。     

Employee relations and innovation: an empirical analysis using patent data

This paper investigates the relationship between employee relations (ER) as tracked in the environment, social, and governance (ESG) database provided by MSCI Inc., and innovation as measured by patents and patent citations. Some ER policies, such as broadly based profit-sharing plans, stock option plans, and stock ownership, create a direct link between a firm’s performance and employee compensation and might therefore be expected to encourage successful innovation. In addition, some other aspects of ER, including good pension plans, good union relations, and a variety of specific benefits (such as flex time) might improve innovation performance through their effect on employee morale or institutional loyalty, or simply by creating incentives to stay with the firm. We find that both of these categories of ER – financial incentives and non-pecuniary motivations – have a positive effect on innovation as measured by patenting and patent citations.     

Environmental regulation of a power investment in an international market

We examine the optimal environmental regulation of three Norwegian power projects: energy conservation, a natural gas fired CCGT and a new hydro project. All projects reduce emissions elsewhere in the Nordic region, and the environmental costs of these emissions are not, in general, fully reflected in market prices. We develop a theory of second best optimal regulation for this case. The optimal regulation is found to deviate substantially from a purely domestic regulation. For instance, we find it optimal to grant a substantial credit to energy conservation. The credit is sensitive to the value of reduced CO₂ emissions and whether the current Norwegian end user tax should be interpreted as an environmental or a fiscal tax.     

COLLUSION IN LOCAL PUBLIC WORKS*

A hierarchical model of collusion in local public works is presented. A local authority plans to undertake a project, delegating its construction to a construction firm. Both of them know the project's cost. However, the federal government decides whether to subsidize the project without knowing its cost. Therefore, the local authority and the constructor may agree to misreport their private information, in order to benefit from the allocation of federal grants. We show that different collusive behaviors may emerge. Then, we characterize the optimal federal grant policy. Finally, we investigate when constructing (shutting down) useless (valuable) projects is optimal.     

Decentralization of Intertemporal Economies With Discounted Maximin Criterion

The intertemporal decentralization literature scrutinizes the ability of markets to achieve dynamically optimal allocation of resources. Put differently, it examines the possibility of designing a mechanism enabling short-lived agents to make independent decisions compatible with long-run optimum. The Hurwicz and Weinberger impossibility result states that the mechanisms that are both privacy preserving and optimal fail to exist when an infinite-horizon optimum is defined by Ramsey-type criteria with discounting. However, for a special case where the economy cannot sustain growth and agents do not discount future utilities, it is known that a decentralized mechanism using rolling plans is in a certain sense asymptotically optimal. To address the problem of possibility of decentralization mechanisms in a sustainable growth economy with discounting, I consider a 'discounted maximin' optimality criterion. It selects the programs that sustain growth of welfare at a given rate. The article argues that this criterion is consistent with the principles of intergenerational justice, which can be defined in terms of intergenerational Nash equilibrium. Furthermore, the article demonstrates that a decentralized mechanism designed on the basis of rolling plans generates decisions that are asymptotically optimal in terms of the discounted maximin.     

Private equity characteristics and performance: An analysis of North American venture capital and buyout funds

The paper investigates the relationship between fund performance and fund characteristics of North American private equity (PE) funds, by analyzing the interactions of fund size, fund sequence, and past fund performance on traditional fund return measures. The empirical evidence is based on both linear and polynomial regressions, on a sample of 345 venture capital (VC) and 411 buyout (BO) funds with vintage year over the period 1995–2010. We document a concave relationship between fund size and performance, persistence in PE performance, as well as a convex relationship between fund sequence and performance. We suggest both the optimal fund size and the optimal fund sequence number. Economic implications for investors and general partners are discussed as well.     

Energy Transition Under Irreversibility: A Two-Sector Approach

This paper analyses the optimal energy transition of a two-sector economy (energy and final goods) under irreversible environmental catastrophe. First, it proposes a general appraisal of optimal switching problems related to energy transition showing: (1) the possibility of a catastrophe due to accumulation of pollution; and (2) technological regimes with the adoption of renewable energy. Second, it numerically shows that for given baseline parameter values, the most profitable energy transition path may correspond to the one in which the economy starts using both resources, crosses the pollution threshold by losing a part of its capital, and never adopts only clean energy. Third, it extends the model to allow for additional investment in energy saving technologies. We then find that this additional investment favours full transition to the sole use of renewable energy. It is then profitable to take advantage of these synergies by jointly promoting deployment of clean energy and providing incentives for investment in energy saving technologies.     

Optimal pension plan default policies when employees are biased

What is the optimal default contribution rate or default asset allocation in pension plans? Could active decision (i.e., not setting a default and forcing employees to make a decision) be optimal? These questions are studied in a model in which each employee is biased regarding her optimal contribution rate or asset allocation. In this model, active decision is never optimal and the optimal default is, depending on parameter values, one of three defaults. The paper explores how the parameters affect the average loss in the population at the optimal default.