The choice of innovation policy instruments

The purpose of this article is to discuss the different types of instruments of innovation policy, to examine how governments and public agencies in different countries and different times have used these instruments differently, to explore the political nature of instrument choice and design (and associated issues), and to elaborate a set of criteria for the selection and design of the instruments in relation to the formulation of innovation policy. The article argues that innovation policy instruments must be designed and combined into mixes in ways that address the problems of the innovation system. These mixes are often called “policy mix”. The problem-oriented nature of the design of instrument mixes is what makes innovation policy instruments ‘systemic’.     

The evolution of conventions under incomplete information

Summary. We formulate an evolutionary learning process with trembles for static games of incomplete information. For many games, if the amount of trembling is small, play will be in accordance with the games (strict) Bayesian equilibria most of the time. This supports the notion of Bayesian equilibrium. Often the process will select a specific equilibrium. We study an extension to incomplete information of the prototype conflict known as Chicken and find that the equilibrium selection by evolutionary learning may well be in favor of inefficient Bayesian equilibria where some types of players fail to coordinate.Received: 17 March 2003, Revised: 3 December 2003, JEL Classification Numbers: C72.     

Optimal choice of monetary policy instruments under velocity and fiscal shocks

This paper, in the spirit of Poole [Poole, William, 1970. The Optimal Choice of Monetary Policy Instruments in a Simple Macro Model. Quarterly Journal of Economics, 84, 192–216.], studies how differently monetary and fiscal shocks influence the appropriate choice of the monetary policy regime. Velocity shocks are introduced by embedding a stochastic cash-in-advance constraint within the New Keynesian framework. In addition to optimal policy under discretion, three classic rules, interest rate targeting, monetary targeting, and the Taylor rule are ranked under both fiscal and velocity shocks. The non-stationarity of prices under the Taylor rule makes it inferior to the other rules under which prices are stationary. Monetary targeting, by stabilizing aggregate demand under fiscal shocks, outperforms interest rate targeting, while the latter provides a better insulation against velocity shocks. Monetary targeting (under fiscal shocks) and interest rate targeting (under velocity shocks) even outperform the optimal policy under discretion for sufficiently high intertemporal elasticities of consumption substitution.     

The choice of environmental policy instruments under correlated uncertainty

This paper analyzes how the presence of correlated uncertainty between the cost and benefit of environmental pollution control can affect the choice of policy instruments. It is shown that the superiority of the nonlinear-tax instrument in which the corrective tax coincides with the expected schedule of marginal benefit may break down in favor of a linear-tax or a quantity instrument when the policy environment shifts from the case of independently distributed to the case of correlated uncertainties. With various combinations of parameter values of the two probability distributions, we also construct three distinct ranges in each of which one instrument turns out to be superior to the other two.     

Environmental policy instruments and imperfectly competitive international trade

Policy makers, industrialists and environmentalists express concern that the imposition of tough environmental policies in some countries displaces production, and hence pollution, to countries which impose less tough environmental policies. Yet empirical studies of such impacts suggest they are small. However, these findings are derived from models in which international trade is modelled as being perfectly competitive. In this paper I model trade as imperfectly competitive with scope for strategic behavior by producers, in this case investment in capital. I show that the choice of environmental policy instrument can have a marked impact on the incentives for producers to act strategically, with environmental standards significantly reducing the incentives for strategic overinvestment relative to environmental taxes or no environmental policy at all. Whether welfare is higher using standards or taxes depends on whether producing countries are also significant consumers of the polluting product, and on whether all producing governments act to reduce emissions or only some subset of governments. To assess the quantitative significance of these theoretical results I conduct policy simulations on a calibrated model of the world fertilizer industry. These simulations show that the impact of environmental policy on strategic behaviour can be large.     

Effectiveness of environmental regulations under imperfect enforcement and the firm's avoidance behavior

This paper explicitly defines enforcement quality and develops a model by incorporating enforcement quality and the firm's avoidance behavior. The results indicate that the effectiveness of environmental regulations is likely to depend upon the level of enforcement quality, as well as upon the nature of the firm's avoidance behavior. Policy instruments may become incompatible under certain circumstances. Enforcement quality should be properly targeted to enhance functional harmonization between instruments. The condition under which emission tax is more effective under imperfect enforcement than under complete enforcement is also identified.     

The social value of public information with costly information acquisition

In a beauty contest framework, public authorities decide the accuracy of public information evaluating how it affects individual actions and private information acquisition. More precise public information increases welfare whenever its marginal cost does not exceed that of private information.     

Cooperative vs. non-cooperative R&D incentives under incomplete information

This paper studies incentives for cooperative research vis-à-vis non-cooperative research in an incomplete information framework. We show that with quantity competition under asymmetric information, the expected payoff from non-cooperative research goes down compared to the case of symmetric information; hence research joint venture incentives of the firms are larger under asymmetric information. In either case, however, the larger is the size of the cost-reducing innovation the lower is the incentive for cooperative research. Finally, in our model, incomplete information does not affect the consumers' welfare, but the firms become worse off.     

Transferable quotas,enforcement costs and typical firms: An empirical application to the Norwegian trawler fleet

An alternative to traditional regulations of fisheries to avoid rent dissipation is the use of individual transferable quotas (ITQ _s ) where prices in the quota market provide the necessary information to owners of harvest rights to contract with each other. However, even under such a decentralized regime, information on the underlying technology of the fishing vessels is also necessary. First, since most fisheries consist of many interrelated production processes, in order to avoid rent dissipation by discarding wrong output mix etc., the structure of production in the multispecies fishery must be known to design a proper quota system. Second, an ITQ system may create incentives for misreporting by understating the actual catch. This may especially be the case where the expected degree of self-enforcement is low. The paper proposes a way to reduce the information requirements under regulation with asymmetric information by constructing a typical firm and comparing performance for the other vessels to this firm. Based on the typical firm, and if the industry is relatively homogenous, the performance and hence catch of any other firm in the industry can be predicted within a certain range. Further, the paper applies this idea to the Norwegian trawler fleet to assess the production structure in terms of jointness, input-output separability, and the supply and demand elasticities for the fishing firms. This information characterizes the fishery and thus how the quota system may be designed and how to construct a yardstick in order to reduce the enforcement cost under a decentralized regulation of ITQs.The authors would like to thank Trond Bjørndal, Røgnvaldur Hannesson, Ola Flaaten and two referees for useful comments and suggestions.     

Climate policy in Western Europe and avoided costs of air pollution control

Abatement of CO₂ emissions will be accompanied by reduced air pollutant emissions such as particulate matter (PM), SO₂, and NO_x. This, in turn, will reduce the need for end of pipe (EOP) pollution control technologies to meet future air quality targets. This dynamic could put more stringent air quality goals within reach, and increase the political feasibility of climate policy. This paper presents a CGE model that has been modified to include the emissions and EOP abatement of PM, SO₂, and NO_x from stationary sources in the EU-17. Emissions of pollutants are modeled as fixed-factor complementary inputs to their associated source. Abatement in each sector is modeled as a substitution between the pollutants and discrete abatement technologies, each of which is sector-specific and characterized by a marginal abatement cost and technical capacity constraint. Scenarios are run to 2020, to assess the costs and co-benefits of simultaneous air quality and climate policies. We find that under the Kyoto Protocol in 2010, the welfare cost of pollution control is reduced by 16% compared to the baseline, effectively offsetting the cost of CO₂ abatement by 15%. The co-benefit results depend heavily on policy choices, and their magnitude relative to total costs is likely to decline as greenhouse targets become more ambitious. In our scenarios, pollution control cost savings range from 1.3 to 20% in 2020, yielding a climate cost offset range of 0.2 to 3.9%. The CO₂ credit imports allowed by the EU via the Clean Development Mechanism (CDM) offer a total savings of $9.7bn in 2020, but only need to be compensated by an additional $0.3–0.4bn in domestic pollution control from stationary sources.     

Alternative standards and instruments for air pollution control in Poland

Like other Central European countries, Poland faces the twin challenges of improving environmental quality while also fostering sustainable economic development. In this study we examine the costs of different standards for air pollution control, and the cost savings from using incentive-based policy instruments in lieu of more rigid command-and-control policies. The comparisons are based on the results of a simulation model of energy use and air pollution control for the Polish economy over 1990–2015. The model simulates least-cost energy supply decisions under different environmental policy assumptions, the corresponding emissions, and the cost of achieving the specified policy objectives. The model results suggest that incentive-based policies will have efficiency gains over command policies that are at least worthy of consideration and may be quite substantial. The size of the gains in practice depends in part on how much flexibility is built into the command approach, e.g., capacity for intrafirm trading as well as alack of technology-specific requirements. To achieve these gains, an increase in the current levels of emissions fees is desirable both to strengthen abatement incentives and to improve the capacity of the Polish government to overcome past environmental damages. However, it seems highly unlikely in practice that fees could be raised to the levels necessary to meet current Polish emissions standards. To make further headway, an evolutionary approach to emissions trading patterned after (and profiting from the experience with) emissions trading in the U.S. seems useful. The program could start out relatively modestly and increase in ambitiousness as the Polish economic transition proceeds.     

The role of location choice in strategic export promotion policy: capital liberalization incentives of exporting countries

We study an international capital liberalization game where exporting countries choose either to open the domestic market for capital inflow or not. We clarify that if the cost difference is large enough, the less productive country is indifferent between closing or opening for inward direct investment, and the more productive country never has an incentive to open. International coordination to open markets is not always necessary in our capital liberalization game since it may deteriorate the welfare of the more productive country and will make world welfare worse off. The earlier version of this paper is Kiyono and Wei (2002).     

Bargaining under incomplete information, fairness, and the hold-up problem

In the hold-up problem incomplete contracts cause the proceeds of relationship-specific investments to be allocated by bargaining. This paper investigates the corresponding investment incentives if individuals have heterogeneous fairness preferences. Individual preferences are taken to be private information. Investments can then signal preferences and thereby influence beliefs and bargaining behavior. In consequence, individuals might choose high investments in order not to signal information that is unfavorable in the ensuing bargaining.     

The optimal choice of monetary policy instruments in a small open economy

Abstract.  This paper studies how the nature of shocks affects the optimal choice of monetary policy instruments in a small open economy. Three classic rules, fixed exchange rates, monetary targeting, and inflation targeting are studied and ranked by comparing with the optimal monetary policy under commitment. We find that the ranking of the simple rules can be mapped to the terms-of-trade variability that the rule allows relative to what a particular shock optimally calls for. It turns out that inflation targeting dominates the other two rules under productivity or velocity shocks, whereas monetary targeting is the best performer under fiscal shocks.     

资源-环境双重约束下我国环境政策工具的选择

根据国际环境政策实施的经验教训以及环境政策制定的取向,提出我国环境政策的建立应该综合应用战略环境影响评价（SEA）、环境影响评价（EIA）、生态补偿（PES）、协议保护机制（CCM）和企业社会责任（CSR）等政策工具,并把这些政策工具传递到国家政策与制度层面以及区域协议上,推动跨国企业与金融信贷履行环境责任与义务。促进项目建设中对环境保护的规划,加强生态系统的恢复与重建,保护和更新资源,建立以政策工具包为基础的综合环境管理体系。同时,推动产业结构调整与升级,加快我国生态环境保护政策的优化与创新。     

Unconventional monetary policy announcements and information shocks in the U.S.

We study unconventional policy shocks and information shocks associated with central bank announcements in the U.S. While unconventional policy shocks capture the direct influence of announced monetary policy actions, information shocks are associated with central bank information conveyed with the announcement. To disentangle these two types of shocks, we impose sign restrictions on high frequency changes in interest rates and stock prices around announcements. We find that information shocks lead to persistent declines in the 10-year government bond yield, whereas the actual unconventional policy shock induces only small interest rate responses. We also find that expansionary output effects of unconventional monetary policy are to some extent counteracted by the information shock.     

Joint implementation under asymmetric information and strategic behavior

Joint Implementation (JI) under the Framework Convention on Climate Change means that countries could partly offset their national abatement commitments by investing in CO₂ abatement projects abroad. JI is introduced as a mechanism for achieving a certain global abatement target less costly by separating the commitments from the implementation of measures. This paper studies the design of a JI contract when the investor has incomplete information about the foreign firm which carries out the JI project (the host). Asymmetric information leads to a decrease in the potential cost savings from JI. Furthermore, private information held by the potential host firm could give the firm a significant positive utility of participating in JI projects. The possibility of being a host for a JI project in the future can prevent potential host firms from investing in profitable abatement projects today. The paper analyzes the impact on emissions of CO₂ of strategic behavior among potential hosts for JI projects.     

The effectiveness of FERC’s transmission policy: is transmission used efficiently and when is it scarce?

We investigate the impact of FERC’s policy to create Independent System Operators (ISOs) that independently manage regional electricity transmission resources and institute regional electricity exchange markets. Our analysis examines how the formation of the PJM ISO affected inter-regional electricity trading costs during the period from March 1997 to June 2002. We also examine how ISO formation affected the likelihood of encountering “congestion” in trading electricity between PJM and adjoining regions (particularly the New York ISO and the more loosely organized East Central Area of Reliability (ECAR)). In addition, our analysis estimates the marginal economic value of increased inter-regional transfer capability.      

The relationship between pollution abatement costs and environmental regulation: Evidence from the Chinese industrial sector

Since the 2000s, China has been trying to strengthen emission controls in response to increasing pollution problems. However, strict implementation of emission controls generates pollution abatement costs. Using regional data for 29 provinces in the Chinese industrial sector from 1995 to 2010, this study estimated the pollution abatement costs for each province through the measurement of environmental efficiency, by applying a directional distance function approach. Moreover, using panel data analysis, this study clarified whether there is a nonlinear relationship between pollution abatement costs and environmental regulations. The empirical results are as follows. The study confirmed that the burden of abatement costs tended not only to occur in the central and western regions but also to increase in the eastern region. Moreover, the nonlinear relationship is inverted U‐shaped; thus, pollution abatement costs increase, as a negative effect of environmental regulations, until a certain inflection point, after which they decrease.     

The difficulties of "polluter pays" policy in agricultural pollution in UK and methods to improve it

Agricultural wastes pollution became serious after great improvement in technology and the encouragement of production for the government since the end of the World War Ⅱ. Economists and environmental scholars suggested that "polluter pays" policy be employed in agricultural pollution control. However, it was hard to implement "'polluter pays " policy alone in agricultural wastes pollution. In practice, there were two social factors which contributed to the improvement of water quality in the southwest of United Kingdom. One method is to communicate with farmers and then give farmers some advice or exhortation on facilities and management. The other method is to get up a telephone hotline for public to report water quality and probable pollution. Therefore, the consideration and combination of social factors in the control of agricultural wastes pollution are necessary and important. Education of basic natural sciences relevant to agricultural pollution, system management of agricultural pollutants and laws relevant to agricultural pollution is suggested to be the third social factor that British government can consider.