ENERGY INTENSITY IMPROVEMENTS IN STEEL MINIMILLS

Over the past 20 years, U.S. steel manufacturing has experienced an episode of creative destruction. Iron-ore based plants closed, and new electric arc furnace (EAF) plants–the "minimills"–opened. The steel industry is an energy intensive segment of manufacturing, and the changeover causes major change in energy use. The analysis here links a plant-level database from the Bureau of the Census with publicly available sources and obtains measures of the best practice energy use in minimills. The analysis examines how technical efficiency, vintage, and capacity utilization affect plant-level electricity use per ton of steel. This measure of electricity use gives a plant's "energy intensity." Plants in the sample keep operating even during deep recessions, suggesting that energy, e.g., BTU, taxes may fall short of the fullest potential for reducing energy use. During recession, plants actually may continue to operate at lower output rates and higher energy intensities rather than close down. Substantial potential exists for energy improvements of as much as 1 billion kWh per year. New facilities exhibit energy intensity improvement of 6.2 kWh/ton per year. This finding is consistent with engineering estimates. Realizing this potential among all plants would require policies that assist capital turnover.     

Information Losses in a Dynamic Model of Credit

This paper examines dynamic information losses associated with loan terminations. We assume that the aggregated returns of current borrowers contain information about the mean returns to future borrowers. In a competitive loan market, the value of this information is not fully internalized by individual borrowers and lenders, and loan decisions fail to be first best. Introducing heterogeneous borrowers, who know their own risk characteristics better than lenders, safer borrowers are less willing to borrow when risk premia rise. As they cease borrowing, the information generated in credit markets becomes noisier and this tends to increase risk premia. The model produces alternating and persistent periods of “tight” and “loose” credit.     

Simple Technical Trading Rules and the Stochastic Properties of Stock Returns

This paper tests two of the simplest and most popular trading rules—moving average and trading range break—by utilizing the Dow Jones Index from 1897 to 1986. Standard statistical analysis is extended through the use of bootstrap techniques. Overall, our results provide strong support for the technical strategies. The returns obtained from these strategies are not consistent with four popular null models: the random walk, the AR(1), the GARCH-M, and the Exponential GARCH. Buy signals consistently generate higher returns than sell signals, and further, the returns following buy signals are less volatile than returns following sell signals, and further, the returns following buy signals are less volatile than returns following sell signals. Moreover, returns following sell signals are negative, which is not easily explained by any of the currently existing equilibrium models.     

STRUCTURAL CHANGE WITHIN THE OLDER POPULATION: ECONOMIC IMPLICATIONS

While much concern has been expressed recently about the aging of the United States population and the socioeconomic implications of this aging, comparatively little attention has been paid to the changes within the older population that likely will evolve during the next few decades. This paper examines changes in the demographic, social, and economic characteristics of the U.S. elderly until the year 2020. Additionally, the paper argues that analysis of the implications of aging based solely on trends in the total size of this population and on characteristics of the present generation of older Americans will not likely yield results fruitful for policymaking and planning.     

Public Equity and Audit Pricing in the United States

To what degree are audit fees for U.S. firms with publicly traded equity higher than fees for otherwise similar firms with private equity? The answer is potentially important for evaluating regulatory regime design efficiency and for understanding audit demand and production economics. For U.S. firms with publicly traded debt, we hold constant the regulatory regime, including mandated issuer reporting and auditor responsibilities. We vary equity ownership and thus public securities market contextual factors, including any related public firm audit fees from increased audit effort to reduce audit litigation risk and/or pure litigation risk premium (litigation channel effects). In cross‐section, we find that audit fees for public equity firms are 20–22% higher than fees for otherwise similar private equity firms. Time‐series comparisons for firms that change ownership status yield larger percentage fee increases (decreases) for those going public (private). Results are consistent with litigation channel effects giving rise to substantial incremental audit fees for U.S. firms with public equity ownership.     

Economic Policy in the Face of Severe Tail Events

From time to time, something occurs which is outside the range of normal expectations. We will call these “tail events” in the sense that they are way out of the tail of a probability distribution. I consider the question of the implications of tail events for economic policy and climate‐change economics. This issue has been analyzed by Martin Weitzman who proposed a Dismal Theorem. The general idea is that, under limited conditions concerning the structure of uncertainty and risk aversion, society has an indefinitely large expected loss from high‐consequence, low‐probability events. Under such conditions, standard economic tools such as cost‐benefit analysis cannot be applied. The present study is intended to put the Dismal Theorem in context and examine the range of its relevance, with an application to catastrophic climate change. I conclude that tail events are sometimes of extreme importance, and we must be extremely careful to include them in situations of deep uncertainty. However, we conclude that no loaded gun of strong tail dominance has been uncovered to date.