Gains from quota trade: theoretical models and an application to the Danish fishery

We provide a framework for evaluating potential effects of introducingtradable quotas to a sector. The effects depend on the economiesof scale and scope of the production technology, and on firms'ability and willingness to learn best practice methods (catchingup) and to change their input and output composition (mix).To illustrate our approach, data from the Danish fishery areused to calculate the potential gains from introducing individuallytransferable fishing quotas. Data envelopment analysis is usedto model the production technology. We find that pure reallocationis as important as pure learning, i.e. quota reallocation withoutcatching-up is as valuable as learning best practice with fixedallocations.     

A role for a pan-European trade union movement?–possibilities in European IR-regulation

Steps towards internationalisation of the trade union movement are considered in the context of the process of political and economic integration taking place in the EU. The trade unions are trying–partly via the ETUC–to play a role at pan-European level. However, the European trade union movement is not a cohesive entity. Besides, it has no significant transnational power-resources. These factors suggest that any European IR-system will be based primarily on political regulation rather than on a system of collective agreements.     

Taxation, Uncertainty, and the Cost of Equity

Traditionally the pre-tax cost of capital is a function of the interest rate and the tax system. However, uncertainty implies that the market's required return is no single interest rate, but depends on risk. Different tax systems split risk differently between firm and government. Thus the required expected return after corporate taxes depends on the tax system. Expressions for this are derived, based on a CAPM-type model. The weighted average cost of capital is decreasing in the tax rate, even for fully equity financed projects. This effect can be substantial, but is neglected in much of the literature.     

Perspective on models in theoretical and practical traditions of knowledge: the example of Otto engine animations

Nineteen informants (n?=?19) were asked to study and comment two computer animations of the Otto combustion engine. One animation was non-interactive and realistic in the sense of depicting a physical engine. The other animation was more idealised, interactive and synchronised with a dynamic PV-graph. The informants represented practical and theoretical traditions of knowledge: science students and teachers at upper secondary school level; vocational students and teachers in vehicle mechanics at upper secondary school level, and; MSc and PhD students in vehicle system engineering. The aim was to explore how they interpreted the animations against the background of their different traditions of knowledge and their experience of physical engines and models of engines. A key finding was that the PhD students saw the interactive animation as a familiar and useful model of engines, whereas the vehicle mechanics teachers saw it as a poor representation of reality. A general conclusion was that there is a variety of competent ways to interpret a model, depending on the tradition of knowledge.     

Jump-Diffusion Processes: Volatility Smile Fitting and Numerical Methods for Option Pricing

This paper discusses extensions of the implied diffusion approach of Dupire (1994) to asset processes with Poisson jumps. We show that this extension yields important model improvements, particularly in the dynamics of the implied volatility surface. The paper derives a forward PIDE (PartialIntegro-Differential Equation) and demonstrates how this equationcan be used to fit the model to European option prices. For numerical pricing of general contingent claims, we develop an ADI finite difference method that is shown to be unconditionally stable and, if combined with Fast Fourier Transform methods, computationally efficient. The paper contains several detailed examples fromthe S&P500 market. This revised version was published online in November 2006 with corrections to the Cover Date.