Environmental policy implications of extreme variations in pollutant stock levels and socioeconomic costs

This paper uses a real options approach to examine the impact of abrupt increases in carbon dioxide emissions and pollutant-related socio-economic costs. It derives optimal investment rules in the form of critical values for both pollutant stock levels and social costs, above which environmental policies should be adopted. Moreover, it determines the optimal emissions abatement level. Our analysis extends the methodology of Pindyck (2000) using jump diffusion processes. We show that if the stock of pollutant is subject to extreme variations and the emissions abatement level is chosen exogenously by the policymaker, then lower levels of the pollutant stock are required to trigger policy adoption. A similar, yet more prominent, effect is observed under the assumption that pollutant-related socio-economic costs and benefits are expected to exhibit abrupt changes. However, different results are obtained when we examine simultaneously the two interrelated decisions, namely, the optimal threshold of emissions abatement and the optimal abatement level. In this case, an increase in the size and/or probability of a jump increases the critical values of both pollutant stock levels and socio-economic costs but leads to higher optimal abatement.     

Clusters for life or life cycles of clusters: in search of the critical factors of clusters' resilience

This article investigates the driving forces behind the life cycles and resilience of technological clusters. It concentrates, in particular, on the combination of critical parameters which allows clusters to succeed in disconnecting their cycle from the cycle of the technologies they produce, in order to maintain stability and growth in unstable economic environments. Three propositions on location decision externalities, the life cycle of composite technologies and the structural properties of knowledge networks are developed and introduced in an inclusive study of cluster trajectories. Discussions show that resilient clusters are those that combine network and external audience effects in location decision-making and evolve towards a specific core/periphery and disassortative structure of knowledge interactions along the knowledge and market phases. Understanding these pathways could be at the heart of the renewal of cluster and regional policy in a macro-economic context characterized by high instability and new growing consumer paradigms.     

Relative Robust Portfolio Optimization with benchmark regret

We extend Relative Robust Portfolio Optimization models to allow portfolios to optimize their performance when considered relative to a set of benchmarks. We do this in a minimum volatility setting, where we model regret directly as the maximum difference between our volatility and that of a given benchmark. Portfolio managers are also given the option of computing regret as a proportion of the benchmark’s performance, which is more in line with market practice than other approaches suggested in the literature. Furthermore, we propose using regret as an extra constraint rather than as a brand new objective function, so practitioners can maintain their current framework. We also look into how such a triple optimization problem can be solved or at least approximated for a general class of objective functions and uncertainty and benchmark sets. Finally, we illustrate the benefits of this approach by examining its performance against other common methods in the literature in several equity markets.     

A disaggregated analysis of EU imports: the implications for the study of patterns of trade and technology

This paper examines trends in the unit prices of manufacturedimports into the European Union (EU) in the period 1988–2002.This is undertaken at a high level of disaggregation, and itis this decomposition which we believe has important implicationsboth for a range of bodies of economic analysis and for policy.The analyses undertaken in this paper confirm that disaggregationmatters in helping to identify unit-price trends. We have alsoshown that unit-price trends vary with the type of economy exportinginto Europe and the type of product being exported, and thatthese results are robust at high levels of disaggregation.     

Markup Variation and Productivity Measurement in Singapore*

Conventional measures of total factor productivity using growth accounting may not be appropriate when there is variation in markups across industries. The existence of market power implies that total factor productivity contains an endogenous component related to the variation in markups. I examine the variation of markups at the industry level for the manufacturing and services sectors in Singapore from 1983 to 2003. Using two different measures, I find that the markups in Singapore are significant in most industries, at around 28 and 55percent for the manufacturing and services sectors, respectively. Markups for the services sector declined during the period, while the markups for the key manufacturing industries increased after the Asian financial crisis in 1997. Accounting for variation in markups suggests that improvement in technological progress tends to be underestimated by 0.5–1.0percent per year. The underestimation is more severe in industries with relatively high markups.     

GSE Activity,FHA Feedback,and Implications for the Efficacy of the Affordable Housing Goals

There is a seeming paradox regarding the “affordable housing goals”: GSE activities in targeted communities have increased under the goals but there has been little measurable improvement in housing market conditions in these communities. This paper seeks to reconcile this paradox by focusing on linkage between GSE purchases and FHA activities. We present a simple theoretical framework suggesting that GSE activities can have a feedback effect on FHA. More aggressive GSE pursuit of targeted borrowers under the affordable housing goals induces potential FHA borrowers with best credit quality to use the conventional market. Changes to the housing market will depend on the FHA response to the loss of its best credits, with many different possible outcomes for credit supply and homeownership, including scenarios in which they remain effectively unchanged. While market-level benefits might not be forthcoming, the shift from FHA to less costly conventional loans is clearly beneficial for affected borrowers. Two-stage least squares estimates of the relationship between GSE and FHA lending after the affordable housing goals were made more binding are found to be consistent with the theoretical predictions.

Innovation and Competitiveness: Trends in Unit Prices in Global Trade

This paper seeks to build on theory, to develop new methods for understanding the nature and basis of sectoral and national competitive advantage, and to do so with a temporal perspective. Neo-Schumpeterian and evolutionary economics perspectives (which place innovation at the forefront of accumulation) highlight the importance of economic rents, barriers to entry and core competencies. There is no one measure that adequately reflects these barriers to entry, and much of the research has been concerned to generate proxies, each of which is in itself partial, but which together provide a comprehensive picture. During the late 1970s, preliminary work was undertaken on the unit price of UK trade as an indicator of relative technological competence. However, this approach has largely been neglected since then, receiving only sporadic attention in US literature, and at high levels of product aggregation. This paper utilizes this approach to try and reflect the dynamic process of shifting competitive advantage in the global economy. Its distinctive feature is the level of detail—six-digit trade classifications—and its breadth of coverage, being applied to seven sets of sectoral classifications involving more than 12 000 product groups. The data set relates to EU imports of manufactured goods between 1988 and 2001. It concludes that there is a strong correlation between unit price performance and innovation intensity, and provides data to show that low-income economies tend to be located in low-innovation niches in sectoral groupings. This has important implications for the conventional wisdom that high incomes will result from a specialization in manufactures.     

Modeling CO2 emission allowance prices and derivatives: Evidence from the European trading scheme

This paper studies the three main markets for emission allowances within the European Union Emissions Trading Scheme (EU ETS): Powernext, Nord Pool and European Climate Exchange (ECX). The analysis suggests that the prohibition of banking of emission allowances between distinct phases of the EU ETS has significant implications in terms of futures pricing. Motivated by these findings, we develop an empirically and theoretically valid framework for the pricing and hedging of intra-phase and inter-phase futures and options on futures, respectively.     

The Asian Drivers and SSA: Is There a Future for Export‐oriented African Industrialisation?

(1253) Raphael Kaplinsky and Mike Morris Export‐oriented industrialisation is the orthodoxy and is widely indicated as a development path for sub‐Saharan Africa. In recent years there has been a surge of clothing exports from a limited number of SSA economies to the US. In 2006 these exports accounted for more than half of SSA’s manufactured exports (excluding South Africa). However, the ending of quota controls on Chinese clothing exports to the US led to a significant fall in these exports. Is this a harbinger for the future of export‐oriented industrialisation in SSA in a world of a level trading playing field?