Green consumers and environmental policy

The present paper examines how improvements in consumers' environmental awareness influence the choice between output and emission taxes, within a framework of imperfect competition and endogenous choice of abatement level. We first show that in the absence of policy intervention, there exists a level of environmental awareness beyond which welfare is decreasing as market imperfections become more prominent relative to environmental concerns. We also confirm that both output and emission taxes are welfare superior to the free-market case. What is surprising, however, is that the welfare performance of an optimally chosen emissions tax is monotonically decreasing in consumers' environmental sensitivity, while the opposite is true for an output tax up to a certain level. At low levels of consumers' environmental awareness an emissions tax is welfare superior, but eventually, there is a level of environmental awareness beyond which an output-tax welfare dominates an emissions tax. Therefore, an emissions tax is better suited to societies that have not yet developed high levels of environmental awareness, while societies characterized by high levels of environmental awareness should prefer an output tax.     

Weak Identification of Forward‐looking Models in Monetary Economics*

Recently, single‐equation estimation by the generalized method of moments (GMM) has become popular in the monetary economics literature, for estimating forward‐looking models with rational expectations. We discuss a method for analysing the empirical identification of such models that exploits their dynamic structure and the assumption of rational expectations. This allows us to judge the reliability of the resulting GMM estimation and inference and reveals the potential sources of weak identification. With reference to the New Keynesian Phillips curve of Galí and Gertler [Journal of Monetary Economics (1999) Vol. 44, 195] and the forward‐looking Taylor rules of Clarida, Galí and Gertler [Quarterly Journal of Economics (2000) Vol. 115, 147], we demonstrate that the usual ‘weak instruments’ problem can arise naturally, when the predictable variation in inflation is small relative to unpredictable future shocks (news). Hence, we conclude that those models are less reliably estimated over periods when inflation has been under effective policy control.     

An empirical inquiry into the short-run dynamics of output,prices and exchange market pressure

In this paper we develop a short-run disequilibrium model for the interaction of output, prices and exchange-market pressure. In this model we consider the trade-off between movements in exchange rates and movements in international reserves and we also incorporate and test purchasing power parity as a long-run hypothesis. The specification adopted preserves the properties of the monetary approach to exchange rates and the balance of payments in the long run. The theoretical model is applied to the small open economy of Greece for the period 1975–1981.     

Estimation of the monetary model of exchange-rate determination under rational expectations

This paper develops a sticky-price version of the monetary model of exchange-rate determination under rational expectations. The reduced-form difference equation for the exchange rate has two roots which lie on either side of unity. In the solution the stable root is solved backwards and the unstable forwards. The model is estimated by the full-information maximum-likelihood method on deutsche mark-dollar data. The results are supportive of the rational-expectations restrictions.     

On the Efficiency of Competitive Markets for Emission Permits

It is typical for economists andpolicy makers alike to presume that competitivemarkets allocate emission permits efficiently.This paper demonstrates that competition in theemission permits market cannot assureefficiency when the product market isoligopolistic. We provide the conditions underwhich a bureaucratic mechanism is welfaresuperior to a tradeable emission permitssystem. Price-taking behaviour in the permitsmarket ensures transfer of licenses to the lessefficient in abatement firms, which then becomemore aggressive in the product market,acquiring additional permits. As a result, theless efficient firms end up with a higher thanthe welfare maximizing share of emissionpermits. If the less efficient in abatementfirms are also less efficient in production,competitive trading of permits may result inlower output and welfare.     

Empirical Modelling of Money Demand in Periods of Structural Change: The Case of Greece*

This paper examines the behaviour of the demand for money in Greece during 1976Q1 to 2000Q4, a period that witnessed many of the influences that cause money‐demand instability. Two empirical methodologies, vector error correction (VEC) modelling and second‐generation random coefficient (RC) modelling, are used to estimate the demand for money. The coefficients of both the VEC and RC procedures support the hypothesis that the demand for money becomes more responsive to both the own rate of return on money balances and the opportunity cost of holding money because of financial deregulation. In general, both procedures also support the hypothesis that the income elasticity of money demand declines over time as a result of technological improvements in the payments system and the development of money substitutes, which lead to economies of scale in holding money.     

Cross-Industry Emission Permits Trading

The present paper examines the effectiveness of emission permits trading across industries. We find that, while permits trading in a competitive environment minimizes costs of compliance, it also enhances product market imperfections. We also find that a standard-setting regulation yields superior welfare results if policy makers have able information. Standard setting allows policy makers the flexibility of taking into account the existing imperfections in each industry. Although not surprising, this result has important policy implications in situations in which policy makers consider establishing permits trading between publicly owned dominant polluters and other industrial polluters. Since policy makers have able information on publicly-owned firms, it might be welfare improving to directly control emissions of the dominant publicly-owned polluters. Given that many of the major polluters in the real world are large firms in heavily concentrated industries many of which are also regulated, our result warrants policy makers' attention.     

Valuing a high-tech growth company: the case of EchoStar Communications Corporation

This article uses real options to value a high-tech company with significant growth option potential. The case of EchoStar Communications Corporation is used as an illustration. The company's growth opportunities are modeled and valued as a portfolio of growth options, namely options to expand its pay television, equipment, and internet services. Expansion of the main business can occur geographically (in the USA, internationally, and through partnerships) or through cross-selling of new products and services to its customer base. The internet business can expand via switching to digital subscriber line and through partnerships. The underlying asset (business) for the expansion options is the ‘base’ discounted cash flow (DCF), after removing the constant growth rate in the terminal-value DCF assumption. The options-based estimate of present value of growth opportunities (PVGO) value substitutes for the terminal growth DCF estimate. We show that our options-based portfolio PVGO provides a better estimate of the firm's growth prospects than the terminal growth DCF assumption.     

Using the allocation of emission permits for strategic trade purposes

We show that the presence of transaction costs in emission permit markets challenges the common presumption that grandfathering permits corresponds to lump-sum transfers with no strategic effects on output. Fixed transaction-costs influence firms’ decision to participate in the permits market, while variable transaction-costs affect firms’ output choice by creating a wedge between buyers’ and sellers’ opportunity cost of using permits. Thus, permit grandfathering can be used as a strategic trade instrument even when firms are price takers in the permit markets. Grandfathered permits differ from subsidies in that the stimulus they provide is bounded exogenously and rather limited.