The propensity to hedge using futures contracts: the case of potato futures contracts

This paper studies why UK non-financial firms hedge with potato futures contracts. It is found that the financial characteristics of firms in the sample play an important role in influencing the propensity to hedge. For example, it is found that firms that hedge are on average larger than firms that do not hedge. Firms that hedge also have more volatile earnings. Furthermore, firms that do hedge appear to want to smooth earnings to reduce the costs of financial distress and avoid entering the highest tax threshold.     

UMTS in France and Europe: How to allocate the licenses?

The awarding of UMTS mobile licenses in France gave rise to a passionate debate as well as to a rather fluctuating history. A beauty contest with a predetermined price was preferred to an auction mechanism, as opposed to what was decided in most European countries, in particular United Kingdom and Germany where licences' prices reached very high levels. In France, only two candidates could be selected from a first tendering and a second one is now being organized in order to allocate the two remaining licences, after the Government has drastically lowered the price of all four licenses. The purpose of the present contribution is to show that auctions, although refused in France for the sake of "controlability" of the awarding procedure, are indeed an appropriate means of spectrum allocation for mobile services, provided that the mechanism is carefully designed and adapted to the context, which may differ according to the country. We first summarize the main lessons from the auctions theory and then discuss the compared efficiency of different mechanisms and their resistance to predation or collusion. On this basis, we finally analyse the actual process of UMTS auctions in various European countries and we tentatively propose a backward fictitious scenario for France.     

如何正确运用管理合同

一、管理合同的特点 采用管理合同(Management Contract)的项目团队中,除了业主代表、设计师以及专业承包商,在项目初期,业主还会聘用具有丰富专业知识和经验的管理承包商(Management Contractor),或简称管理商.     

Determinants of the premium in forward contracts

Whilst the benefits of forward contracting for goods and services have been extensively researched in terms of mitigating market power effects in spot markets, we analyse how the risk in spot price formation induces a counteracting premium in the contract prices. We consider and test a wide-ranging set of propositions, involving fundamental, behavioural, dynamic, market conduct and shock components, on a long data set from the most liquid of European electricity forward markets, the EEX. We show that part of what is conventionally regarded as the market price of risk in electricity is actually that of its underlying fuel commodity, gas; that market power has a double effect on prices, insofar as it increases spot prices and induces a forward premium; that oil price sentiment spills over and that the premium reacts to scarcity and the higher moments of spot price uncertainty. We observe that considerations of the scale and determinants of the forward premium are at least as important as the market power effects in spot market price formation when evaluating the efficiency of wholesale power trading.     

Locational-based coupling of electricity markets: benefits from coordinating unit commitment and balancing markets

We estimate the benefits of electricity locational marginal pricing (LMP) that arise from better coordination of day-ahead commitment decisions and real-time balancing markets in adjacent power markets when there is significant uncertainty in demand and wind forecasts. To do so, we formulate a series of stochastic models for committing and then dispatching electric generators subject to transmission limits. In the unit commitment stage, the models optimise day-ahead generation schedules under either the full set of network constraints or a simplified net transfer capacity (NTC) constraint, where the latter represents the present approach for limiting forward electricity trade in Europe. A subsequent redispatch model then creates feasible real-time schedules. Benefits of LMP arise from decreases in expected start-up and variable generation costs resulting from consistent consideration of the full set of network constraints both day-ahead and in real time. Meanwhile, coordinating adjacent balancing markets provides benefits because intermarket flows can be adjusted in real-time in response to changing conditions. To quantify these benefits, we analyse a stylised four-node network, examining the effects of varying system characteristics on the magnitude of the locational-based unit commitment benefits and the benefits of intermarket balancing. We conclude that both categories of benefits are situation dependent, such that small parameter changes can lead to large changes in expected benefits. Although both can amount to a significant percentage of operating costs, we find that the benefits of coordinating balancing markets generally exceed unit commitment benefits.     

International spillovers from US forward guidance to equity markets

We quantify the international spillovers of explicit Federal Open Market Committee (FOMC) policy rate guidance used as an unconventional monetary policy tool at the zero lower bound of the policy rate on international equity markets, considering equity indices of both advanced and emerging economies. We find that stimulatory explicit FOMC policy rate guidance announcements at the zero lower bound led to higher equity prices in a number of advanced and emerging economies. Moreover, we find that equity indices of economies with lower sovereign ratings rose by more, consistent with the risk-taking channel of monetary policy.     

如何正确运用传统合同

编者按:在国际工程承包市场经营的过程中,合同有着众所周知举足轻重的作用.多年来业界同仁及本刊作者与读者对合同的讨论不断发展常议常新.从这一期起,我们又特别邀请了英国西英格兰大学的孟庆海先生分几期讨论合同的问题,内容涉及传统合同、设计建造合同、管理合同和合同中的伙伴关系.敬请垂注.     

Spot and forward markets for natural gas: The effects of state regulation

Since the emergence of a spot market in natural gas in 1984, state regulators have been concerned that regulated utilities would fail to choose between contracts and spot purchases in a way that minimizes costs. Grounds for this concern are shown, under two alternative rate structures, in a model where regulation produces ex post profit and loss restrictions. Two policy resolutions to the problem are suggested, one that uses an alternative mechanism for triggering rate reviews, allowing the substitution of ex ante for ex post profit and loss restrictions, and one that exploits the special structure of gas markets within the context of traditional regulatory practice.     

The incentive effect in share contracts: The case of finite resources

Using share contracts is a universal response to exchange under uncertainty. However, the benefits of share payments are tempered by their negative moral hazard incentive effects. By incorporating geological considerations into the producer's wealth-maximizing decision problem, this paper demonstrates these incentive effects in the case of nonrenewable resources. This paper also develops an expression for estimating the size of the incentive effects in the case of petroleum production. This expression shows that underproduction is a function of the royalty rate used and certain reservoir characteristics that can be easily estimated from publicly available data. Using such data, this paper demonstrates that such production loss can be a significant portion of cumulative production.     

Social contracts,markets and efficiency: Groundwater irrigation in North India

This paper uses primary data to analyze the institutions and informal markets that govern groundwater allocation in a sugarcane-cultivating village in North India. We find that, in contrast to earlier literature, the observed water trades result in efficient water allocation across farms. We interpret this and other stylized facts in terms of a social contract using a simple bargaining model with limited inter-player transfers. Poor functioning of the power sector leads to reduced pumping and a water supply constraint. Simulations show that power supply reform can significantly increase farm yields, and be financed out of increased farm profits.     

Auctioning incentive contracts: The common cost,independent types case

Laffont and Tirole (1987) analyzed the problem of a regulator that wants to select one ofn firms to carry out a single indivisible project when the firms have private and independent costs and have the possibility of an ex-post investment in (non-observable) effort to reduce the (observable) cost.This paper generalizes the analysis to a model of common costs, unknown at the bidding stage, while keeping the assumption of independent types. I show that the main characteristics of the private costs model are kept in a common cost framework. I provide two mechanisms that may be used to implement the optimal contract.This is a much revised version of a part of chapter one of my Ph.D. dissertation. I would like to thank Drew Fudenberg, Oliver Hart, and two anonymous referees for their comments. I am especially indebted to Jean Tirole, who suggested this problem to me. I have also benefited from presentations at MIT and the EARIE 93 Meeting. Financial support from INVOTAN (grant 3/88/PO) is gratefully acknowledged. Remaining errors are my own.     

Sunspots and incomplete financial markets: The general case

Summary This paper examines the effects of extrinsic uncertainty or sunspots on competitive equilibrium when financial markets are incomplete. For the canonical two-period, pure-exchange model with bonds (or so-called nominal assets, yielding fixed overall returns specified in units of account, and including pure inside money), the following result is established: Generically in endowments, if there areS sunspot states in the second period, but only 0<I<S distinct types of bonds, then — corresponding to the inherent deficiency in the financial markets — sunspots will generateD=S–I dimensions of consumption allocation or real (as well as spot price or nominal) indeterminacy.     

Information and transparency in wholesale electricity markets: evidence from Alberta

We examine the role of information transparency in Alberta’s wholesale electricity market. Using data on firms’ bidding behavior, we analyze whether firms utilize information revealed in near real-time through the Historical Trading Report (HTR), which is released 10 min after each hour and contains a complete (de-identified) list of every firms’ bids into the wholesale market from the previous hour. We demonstrate that firms are often able to identify the offers of specific rivals by offer patterns adopted by those firms. For one of these firms, these patterns are associated with higher offer prices. This is consistent with allegations by Alberta’s Market Surveillance Administrator that firms may be utilizing unique bidding patterns to reveal their identities to their rivals to elevate market prices. We show that certain firms respond to rival offer changes with a lag consistent with responding to information revealed through the HTR, and that they respond differently to different firms, suggesting that they are able to infer identification.     

Pricing and capacity provision in electricity markets: an experimental study

The creation of adequate investment incentives has been of great concern in the restructuring of the electricity sector. However, to achieve this, regulators have applied different market designs across countries and regions. In this paper we employ laboratory methods to explore the relationship between market design, capacity provision and pricing in electricity markets. Subjects act as firms, choosing their generation capacity and competing in uniform price auction markets. We compare three regulatory designs: (1) a baseline price cap system that restricts scarcity rents, (2) a price spike regime that effectively lifts these restrictions, and (3) a capacity market that directly rewards the provision of capacity. Restricting price spikes leads to underinvestment. In line with the regulatory intention both alternative designs lead to sufficient investment albeit at the cost of higher energy prices during peak periods and substantial capacity payments in the capacity market regime. To some extent these results confirm theoretical expectations. However, we also find lower than predicted spot market prices as sellers compete relatively intensely in capacities and prices, and the capacity markets are less competitive than predicted.     

Auction markets for dispatchable power: How to score the bids

Competitive bidding for electric generating capacity is becoming based on economic dispatch rather than the PURPA must-take norm. Incorporating economic dispatch into bidding requires different price scoring procedures. The avoided cost of a dispatchable project is determined by the energy price offered. Price scoring methods based on a percentage of avoided cost approach are uneconomically biased against baseload projects, because they neglect the duration effects of their dispatch. This bias is illustrated in a simple model of economic dispatch. A number of utilities use the percentage of avoided cost method for dispatchable capacity. They can correct the bias by using a net benefits per kW measure of economic value.     

When prices hardly matter: Incomplete insurance contracts and markets for repair goods

This paper looks at markets characterized by the fact that the demand side is insured. In these markets, a consumer purchases a good to compensate consequences of unfavorable events, such as an accident or an illness. Insurance policies in most lines of insurance base indemnity on the insured's actual expenses, i.e., the insured would be partially or completely reimbursed when purchasing certain goods. In this setting, we discuss the interaction between insurance and repair markets by focusing, on one hand, upon the development of prices and the structure of markets with insured consumers, and, on the other hand, the resulting backlash on optimal insurance contracting. We show that even in the absence of ex post moral hazard the extension of insurance coverage will lead to an increase in prices as well as to a socially undesirable increase in the number of repair service suppliers if repair markets are imperfect.     

Markets for contracts: experiments exploring the compatibility of games and markets for games

Summmary. The research explores the relationship between games and the economic environment in which the games might be embedded. The focus is on a market institution in which agents buy and sell rights to participate in a follow-on stage of strategic interaction. The central question posed concerns how two different types of processes, the game and the market, interact. The market converges to a competitive equilibrium that is consistent with the Nash equilibrium that obtains in the game, and the convergence of the market to a competitive equilibrium lags the convergence of behaviors in the game to a Nash equilibrium.