Optimal regime switching and threshold effects

We consider a general control problem with two types of optimal regime switch. The first one concerns technological and/or institutional regimes indexed by a finite number of discrete parameter values, and the second features regimes relying on given threshold values for given state variables. We propose a general optimal control framework allowing to derive the first-order optimality conditions and in particular to characterize the geometry of the shadow prices at optimal switching times (if any). We apply this new optimal control material to address the problem of the optimal management of natural resources under ecological irreversibility, and with the possibility to switch to a backstop technology.     

Intertemporal Emission Permits Trading Under Uncertainty and Irreversibility

This paper analyzes the effect of emission permit banking on clean technology investment and abatement under conditions where the stringency of the future cap is uncertain. We examine the problem of heterogeneous firms minimizing the cost of intertemporal emission control in the presence of stochastic future pollution standards and emission permits that are tradable across firms and through time. A firm can invest in clean capital (an improved pollution abatement technology) to reduce its abatement cost. We consider two possibilities: that investment is reversible or irreversible. Uncertainty is captured within a two period model: only the current period cap is known. We show that if banking is positive and marginal abatement costs are sufficiently convex, there will be more abatement and investment in clean technology under uncertainty than there would be under certainty and no banking. These results are at odds with the common belief that uncertainty on future environmental policy is a barrier to investment in clean capital. Moreover, under uncertainty and irreversibility, we find that there are cases where banking enables firms to invest more in clean capital.     

Decoupling Direct Payments and the Dynamics of Decisions under Price Risk in Cattle Farms

The impact of decoupling direct payments from production on producers' decisions, taking account of price uncertainty and risk aversion, is analysed through a multi‐period mathematical programming model. This model is applied to beef cattle farms in two French regions: Limousin and Pays de la Loire. The technical coefficients are represented by an engineering production function estimated for both regions. The behavioural parameters have been obtained through a survey and model calibration. Policy changes have been modelled through different simulation scenarios relating to the decoupling of direct payments. Model results show that decoupling policies produce a more homogenous response from different types of farmers. The share of cattle activities on farms decreases and the production techniques become less intensive.     

Farm Level Supply of Short Rotation Woody Crops: Economic Assessment in the Long‐Term for Household Farming Systems

In this paper, we propose an analysis and modeling of farmers’ decision to convert a part of their annual crops area into woody crops: short rotation coppices (SRCs). Different criteria—technical, economic, and financial—are highlighted in the farmers’ decision to adopt this production. A farm‐level model is proposed and incorporates these decision criteria. The objective is to test several incentive scenarios to encourage risk‐averse cereal farmers to plant trees. A multiperiod model of investment is built and tests possible adoption by farmers based on financial and structural parameters and according to the outlook of agricultural markets. The simulations show that if the cash crop prices fluctuate in the future and if farmers are risk averse the strategy of on‐farm diversification toward woody crops under contractual arrangements could be relevant for farmers to mitigate the risks in the long run. Cet article présente une analyse et une modélisation de la décision d’un agriculteur céréalier qui souhaite convertir une partie de sa surface en grande culture en Taillis à Courte Rotation (TCR). Un modèle multi‐périodique d’investissement est construit et incorpore différents critères techniques, économiques et financiers qui entrent dans la décision d’adopter ces nouvelles cultures pérennes. Le modèle permet de tester le rôle de différents types de soutiens, proposés aujourd’hui dans le cadre de la Politique Agricole Commune européenne, permettant d’encourager les agriculteurs averses au risque à planter des arbres. Les simulations montrent que si les prix des grandes cultures annuelles fluctuent à l’avenir, si la plantation d’arbres est soutenue et si les agriculteurs sont averses au risque, la stratégie de se diversifier vers la plantation d’arbres à croissance rapide, sous contrat, peut permettre d’atténuer le risque à long terme.     

The effect of the ‘evoking freedom’ technique on sales in a computer-mediated field setting

The ‘evoking freedom’ technique is a verbal compliance procedure which solicits someone to comply with a request by simply telling a person that he/she is free to accept or to refuse the request. However, the effect of this technique has never been tested in a selling context. Previous customers (N = 900) of an extreme sports store were solicited by email to participate in a campaign where they were offered a gift voucher if they persuaded someone to become a new customer of the store. According to the case, the email contained a sentence that stated that they were free to participate or not in the operation. It was found that the ‘evoking freedom’ condition was associated with a higher number of new customers (+8.4%) than the control condition (+4.7%).     

How to refuse a vote on the EU? The case against the referendum in the House of Commons (1974–2010)

Under what conditions do politicians oppose referendums especially to decide questions of European integration? Existing literature has identified reasons why governments and political parties pledge to hold non-mandatory referendums to ratify EU treaties or determine a country’s participation in the EU project, and some studies have analysed the effect of voter demand and attitudes towards EU referendums. This study examines the positions politicians themselves take towards popular participation in decision-making on the EU. The paper presents a summative content analysis of parliamentary debates in the United Kingdom between 1974 and 2010, tracing MPs’ arguments against using referendums to determine the UK’s participation in EU integration. Our results indicate that the range of claims made by MPs in the House of Commons against referendums on European matters has narrowed over time, although opposing arguments have continued to fall into the same set of four argumentative strategies. We find that institutional arguments, reflecting a Burkean understanding of representative democracy, consistently predominate over arguments that cite practical, political and manipulation concerns.     

Economic and environmental impact of the CAP mid-term review on arable crop farming in South-western France

The issue addressed in this paper is whether implementation of the CAP MTR, (involving decoupled payments reduced by “modulations” and subject to cross-compliance measures) can be effective in improving the environmental impact of arable farming. The focus is on two French cross-compliance measures (compulsory buffer strips along rivers and crop diversity). A farm-level bio-economic model incorporating yield uncertainty is built and adjusted to represent two typical arable farms in the Southwest of France. The model also combines agro-environmental indicators. The results indicate that a simple decoupling of direct payments, without cross-compliance measures, has no impact on allocations between different crops. If cross-compliance measures are imposed, a small reduction in the cultivated area of irrigated crops is observed. The penalty levied (1% of the total subsidy paid) when farmers do not comply with the “buffer strips” requirement is sufficient for both farm-types. Decoupling and modulation result in a fall in the total gross margin of around 3%, principally because of the 5% modulation rate, while the “buffer strips” requirement leads to a further decrease of around 1%. Moreover, this requirement improves the environmental indicators at the farm level.     

Supplementing Domestic Mitigation and Adaptation with Emissions Reduction Abroad to Face Climate Change

In this paper we focus on a long-term dynamic analysis of the optimal adaptation/mitigation mix in the presence of a pollution threshold above which adaptation is no longer efficient. We account for accumulation in abatement capital, greenhouse gases, and adaptation capital in order to better capture the arbitrage between abatement and adaptation investments. Pollution damages arise from the emissions due to the country consumption but also from the emissions of the rest of the world (ROW). A pollution threshold is then introduced, above which adaptation is no longer efficient. We obtain that if this threshold is lower than the steady-state level of pollution, there is no way for the modelled economy to avoid it. In particular, such a situation will appear if the ROW’s emissions are high. We then show that CDM may be a means to avoid a pollution threshold above which adaptation becomes of no use.     

International trade and income distribution: reconsidering the evidence

This article reassesses the link between international trade and income distribution. We argue that one way to assess the influence of international trade upon income distribution is to take account of each country’s specific trade patterns by measuring the changes in the factor content of trade. The econometric specification is based on changes in Gini indices (over non-overlapping 4-year intervals), computed exclusively from series drawn from the same source. Our results show that a change in the factor content of trade has a significant impact on income distribution. The sign and magnitude of this impact is conditional on the national income level. We find that an increase in the labor content of trade raises income inequality in poor countries, but reduces it in rich countries (the reverse is true for the capital content of trade). In particular, we show that in the 1980s and 1990s, international trade may have contributed significantly to widening income inequalities in developing countries.     

Branch banking network assessment using DEA: A benchmarking analysis—A note

This paper presents a benchmarking analysis of the branches and regional banks of a large French banking group. The analysis focuses on operational performance. Starting from an ‘individual’ diagnosis at branch level, a ‘network’ diagnosis is developed at regional bank level. The aim of the paper is to develop (i) operational performance indicators from the inefficiency score and (ii) a benchmarking procedure adapted to the network structure of the banking group under study. The banking group comprises 1611 branches that form 16 regional groups. The branches operate in six different business environments. A method is therefore required (a) to aggregate the inefficiency scores of individual branches to evaluate the regional groups and (b) to integrate the differences in environment into the evaluation procedure. Inefficiency scores are calculated using the data envelopment analysis (DEA) approach. This is based on the principle of comparison; once identified, the best practices are used to construct the efficiency frontier. Each entity is then positioned relative to that frontier. The model proposed in this paper determines one efficiency frontier for each type of environment. The results reveal that 30% of branches are efficient. Special emphasis is placed on quantifying productivity gains at regional bank level and on practicing intra- and inter-regional bank benchmarking.