Law and Preferences

Legal rules do more than provide incentives, they change people.When preferences and norms are endogenously determined via aprocess of imitation and learning, legal rules, by affectingthe market outcome, may affect the dynamics of preference formation.Analyzing the effect of different legal rules should thereforego beyond the analysis of the incentives they provide. It shouldalso include an analysis of their effect on the distributionof preferences and norms of behavior. We illustrate this claimby considering a simple market game in which individuals mayhave preferences that include fairness concerns. We show thatdifferent legal rules change not only the pattern of trade ina market game, but also individuals' fairness concerns. Thatis, different rules may eventually make individuals care more(or less) about a fair outcome. Specifically, our model suggeststhat enhanced remedies for breach of contract may reduce equilibriumpreferences for fairness.     

Interruption insurance for generation and distribution of electric power

We describe a simple insurance scheme for use in an environment in which consumers of electricity are differentiated by their value of uninterrupted service as well as their location. Location plays a determining role in the model, in that reliability of distribution is allowed to vary throughout the network. Consumers choose a level of compensation for service interruption and pay a premium that depends on this compensation, as well as the distribution reliability at their location. In the event of power shortages, the utility will interrupt consumers according to their selected compensation so as to minimize compensation payments. The premium schedule is designed to induce consumer self-selection which results in efficient rationing, i.e., consumers are interrupted in increasing order of their interruption losses. The tariff has the added feature of inducing consumers to purchase full insurance and thus transfers all of the risk to the utility. It is shown that with proper tuning the proposed insurance scheme is Pareto superior to a uniform service charge with random rationing.     

Optimal transmission switching: economic efficiency and market implications

Traditionally, transmission assets for bulk power flow in the electric grid have been modeled as fixed assets in the short run, except during times of forced outages or maintenance. This traditional view does not permit reconfiguration of the transmission grid by the system operators to improve system performance and economic efficiency. The current push to create a smarter grid has brought to the forefront the possibility of co-optimizing generation along with the network topology by incorporating the control of transmission assets within the economic dispatch formulations. Unfortunately, even though such co-optimization improves the social welfare, it may be incompatible with prevailing market design practices since it can create winners and losers among market participants and it has unpredictable distributional consequences in the energy market and in the financial transmission rights (FTR) market. In this paper, we first provide an overview of recent research on optimal transmission switching, which demonstrates the substantial economic benefit that is possible even while satisfying standard N−1 reliability requirements. We then discuss various market implications resulting from co-optimizing the network topology with generation and we examine how transmission switching may affect locational Marginal Prices (LMPs), i.e., energy prices, and revenue adequacy in the FTR market when FTR settlements are financed by congestion revenues.     

The Minimum Wage and the Cause of Democracy

Too often the minimum wage is conceived of as a small policy measure that will be of benefit to only a small segment of the labor market while imposing costs on another segment of the labor market. Unexplored, however, are the larger philosophic questions that such a small measure may actually raise. One such issue is the relationship between the minimum wage and democratic principles. In this paper I argue that the minimum wage furthers the ends of democratic society in that low-wage workers may achieve greater equality of standing with their piers to the extent that income inequality is at all lessened; their autonomy as individuals is enhanced through higher wages, which in turn enables them to claim the benefits of citizenship and participate more effectively in the democratic process; and it fosters greater economic development in that it raises the overall structure of a region and perhaps the productivity of that region.     

The structure of exactly strongly consistent social choice functions

For ? an anonymous exactly strongly consistent social choice function (ESC SCF) and x an alternative, define $\text{b}{}_{\mathrm{x}}\text{=b(}{}^{\mathrm{f}}\text{)}{}_{\mathrm{x}}$ to be the size of a minimal blocking coalition for x. By studying the correspondence between ? and $\text{{b(}{}^{\mathrm{f}}\text{)}{}_{\mathrm{x}}\text{}}$, we establish the existence, uniqueness and monotonicity of ESC SCF's. We also prove the following conjecture of B. Peleg: A non–constant anonymous ESC SCF depends on the knowledge of every player's full preference profile.     

TAYLOR PROJECTION: A NEW SOLUTION METHOD FOR DYNAMIC GENERAL EQUILIBRIUM MODELS

This article presents a new solution method for dynamic equilibrium models. The solution is approximated by polynomials that zero the residual function and its derivatives at a given point x₀. The algorithm is essentially a type of projection but is significantly faster, since the problem is highly sparse and can be easily solved by a Newton solver. The obtained solution is accurate locally in the neighborhood of x₀. Importantly, a local solution can be obtained at any point of the state space. This makes it possible to solve models at points that are further away from the steady state.     

Financial Distress and Bank Restructuring of Small to Medium Size UK Companies

We use a unique data set to study how U.K. banks deal with financially distressed small and medium-sized companies under a contractualist bankruptcy system. Unlike in the U.S., these procedures limit the discretion of courts to strict enforcement of debt contracts, without any dilution of creditors claims. We show that lenders and borrowers select a debt structure that avoids some of the market failures often attributed to a contractualist system. Collateral and liquidation rights are highly concentrated in the hands of the main bank, giving it a dominant position in restructuring or liquidating a defaulting firm. There is little litigation, and no evidence of co-ordination failures or creditors runs. However, there is some evidence that the banks dominance makes it lazy in monitoring, relying heavily on the value of its collateral in timing the bankruptcy decision.     

Rational Buyer Meets Rational Seller: Reserves Market Equilibria under Alternative Auction Designs

We examine efficiency properties and incentive compatibility of alternative auction formats that an electricity network system operator may use for the procurement of ancillary services required for real-time operations. We model the procurement auction as a hierarchical multiproduct auction, and study several designs such as a uniform price auction minimizing revealed social cost, a uniform price auction minimizing the system operator's cost and a pay as bid auction minimizing revealed social cost. We take into account that rational bidders will respond to any market design so as to maximize their expected benefit from participating in that market. Under the assumptions of our model, we show that the uniform price auction minimizing revealed social cost is the only one that guarantees productive efficiency. We also find that expected revenue (payment in our case) equivalence between pay as bid and uniform price auctions does not extend to the hierarchical products case and the ranking of these auctions is ambiguous and depends on the data. For the procurement auction minimizing the system operator's cost, we show that misrepresentation of capability may result in capacity shortages if there are capacity constraints. For the case where only higher capability resources are constrained, this will result in random price spikes decreasing in frequency with the price cap (this is the amount paid to capacity in demand states with shortages). When lower type resources are capacity constrained as well, price spikes will be seen for both type of resources. Such artificial shortages result in reduced reliability in real-time operations.     

The searchers,II: How consumers can find cost-effective,quality health care

The original "Searchers" article appeared in the March 2000 issue of Employee Benefits Journal. It described the use of a patient satisfaction survey at Southwest Texas State University (SWT) to assist employees at the annual open enrollment period to better select their managed care organization (MCO). This article revisits that process, but further describes the subsequent publication of a recommended list of preferred physicians and the use of the peer review to report consumer concerns about the performance of individual physicians.     

Proactive planning and valuation of transmission investments in restructured electricity markets

Traditional methods of evaluating transmission expansions focus on the social impact of the investments based on the current generation stock which may include firm generation expansion plans. In this paper, we evaluate the social welfare implications of transmission investments based on equilibrium models characterizing the competitive interaction among generation firms whose decisions in generation capacity investments and production are affected by both the transmission investments and the congestion management protocols of the transmission system operator. Our analysis shows that both the magnitude of the welfare gains associated with transmission investments and the location of the best transmission expansions may change when the generation expansion response is taken into consideration. We illustrate our results using a 30-bus network example. An erratum to this article can be found at