Risk Aversion, Intergenerational Equity and Climate Change

The paper investigates a climate-economy model with an iso-elastic welfare function in which one parameter measures relative risk-aversion and a distinct parameter measures resistance to intertemporal substitution.We show both theoretically and numerically that climate policy responds differently to variations in the two parameters. In particular, we show that higher but lower leads to increase emissions control. We also argue that climate-economy models based on intertemporal expected utility maximization, i.e. models where = , may misinterpret the sensitivity of the climate policy to risk-aversion.     

Parallel Neutrality

This paper develops the notion of parallel-neutral technical change for inputs and outputs. It is shown that parallel-neutral technical change generalizes existing radial notions of neutral technical change. A taxonomy of the structural consequences of parallel-neutral technical change is developed.     

Dissertation abstract: “Essays in applied economics on the intervention of a third player in agency relationships”

Agency theory has established that appropriate incentives can reconcile the diverging interests of the principal and the agent. Focusing on three applications, this dissertation evaluates the empirical relevance of these results when a third party interacts with the primary contract. The analyses provided rely on either laboratory or natural experiments. First, corruption is analyzed as a two-contract situation: a delegation contract between a Principal and an Agent and a corruption pact concluded between this Agent and a third player, called Briber. A survey of the recent microeconomic literature on corruption first highlights how corruption behavior results from the properties of those two agreements. We thereafter show that the Agent faces a conflict in reciprocities due to those two conflicting agreements. The resulting delegation effect, supported by observed behavior in our three-player experimental game, could account for the deterrence effect of wages on corruption. Second, health care is governed by contradictory objectives: patients are mainly concerned with the health provided, whereas containing health care costs is the primary goal of health care administrators. We provide further insights into the ability of incentives to balance these two competing objectives. In this matter, our theoretical and econometric analysis evaluates how a new mixed compensation scheme, introduced in Quebec in 1999 as an alternative to fee-for-services, has affected physicians’ practice patterns. Free switching is shown to be an essential feature of the reform, since it implements screening between physicians. Finally, the demand for underground work departs from the traditional Beckerian approach to illegal behavior, due to the dependence of benefits from illegality on competitors’ behavior. We set up a theoretical model in which the demand for underground work from all producers competing on the same output market is analyzed simultaneously. We first show that competition drastically undermines the individual benefits of tax evasion. At equilibrium, each firm nonetheless chooses evasion with a positive probability, strictly lower than one. This Bertrand curse could then account for the “tax evasion puzzle” i.e. the overprediction of evasion in models that ignore market interactions. We thereafter show that allowing firms to denounce competitors’ evasion is not likely to solve this curse—by providing a credible threat against price cuts, it fosters illegal work. Empirical evidence from a laboratory experiment confirms these predictions. Without denunciation, experimental firms often choose evasion whereas evasion benefits are canceled out by competition. When introduced, denunciation is rarely used by firms, but the threat makes evasion profitable. JEL Classification K42, I18, D21, C25, C91     

Issues in decentralizing the provision of education

This paper analyzes some of the problems that arise in decentralizing education to the private sector. We concentrate on the difficulties that result from the heterogeneity of students and competition among schools in a location setting. We analyze two main issues, the resources expended by schools and the mix of students in schools, and report on results for two others, the location of schools and their number. For each of these, we investigate the extent to which decentralizing the provision of schooling results in an efficient allocation of resources, and consider the use of vouchers to improve the situation. Our analysis draws on elements of three distinct methodologies: the theory of clubs, location theory, and the theory of monopolistic competition. We find that private schooling will typically be inefficient, but that inefficiency may sometimes be corrected by appropriately designed vouchers.We would like to thank Olivier Debande, Jean-François Wen, two anonymous referees, and seminar participants at the 1st meeting of the Canadian Public Economics Study Group and the 51 st congress of the International Institute of Public Finance for helpful comments. Stefan Buergi and Luc Savard provided useful research assistance. We are also grateful to the SSHRCC and the FCAR for financial support.     

A STRUCTURAL RISK‐NEUTRAL MODEL FOR PRICING AND HEDGING POWER DERIVATIVES

We develop a structural risk‐neutral model for energy market modifying along several directions the approach introduced in Aïd et al. In particular, a scarcity function is introduced to allow important deviations of the spot price from the marginal fuel price, producing price spikes. We focus on pricing and hedging electricity derivatives. The hedging instruments are forward contracts on fuels and electricity. The presence of production capacities and electricity demand makes such a market incomplete. We follow a local risk minimization approach to price and hedge energy derivatives. Despite the richness of information included in the spot model, we obtain closed‐form formulae for futures prices and semiexplicit formulae for spread options and European options on electricity forward contracts. An analysis of the electricity price risk premium is provided showing the contribution of demand and capacity to the futures prices. We show that when far from delivery, electricity futures behave like a basket of futures on fuels.     

Effect of watermarks as visual cues for guiding consumer choice: An experiment with restaurant menus

Priming can influence preferences. In this experiment, we extend this idea by using watermark visual primes. On a restaurant menu cart, primes related to the sea, countryside (or no prime) were used with alone diners in a restaurant. The results show that, compared to the control no-prime condition, primes related to the sea significantly increased the consumption of fish dishes whereas primes related to the countryside did not significantly increase the consumption of meat dishes.     

Market structure and demand-side substitutability of chained urban hotel segments

This study analyzes how the demand in hotel markets is divided amongst chained hotel segments. Hypotheses regarding consumers’ switching behavior due to changes in income levels and relative prices are tested using data from 25 major urban markets in the United States, encompassing segments ranging from luxury to economy over 43 quarters. The effects of differentiation and market concentration are also investigated in this context. The results suggest that leisure and individual consumers of the low-scale segments may be trading “up” to higher scales when their income increase, but that upscale segments’ corporate consumers are not necessarily trading “down” when Corporate Income fall. In addition, only low-scale segments appear to be substitutes to upscale segments, but the inverse seems not to be true. Also, properties in mid-range segments are found to be the only ones benefiting from a high market concentration, while low-scale properties turn out to be the ones gaining from differentiation through price.     

Productivity growth and biased technological change: The case of Moroccan hotels

This paper proposes a procedure to analyze Moroccan hotels productivity, based on Luenberger productivity indicator to estimate and decompose productivity change into efficiency change and technological change. This paper enlarges the procedure and further decomposes technological change to study the sources of bias in technological change. Therefore, a clearer and more enlightening view of tourism productivity change emerges. Policy implications are developed.     

Understanding Changes in the Distribution and Redistribution of Income: A Unifying Decomposition Framework

In recent decades income inequality has increased in many developed countries but the role of tax and transfer reforms is often poorly understood. We propose a new method allowing for the decomposition of historical changes in income distribution and redistribution measures into: (i) the immediate effect of tax‐transfer policy reforms in the absence of behavioral responses; (ii) the effect of labor supply responses induced by these reforms; and (iii) a third component allowing us to explore the effect of changes in the distribution of a wide range of determinants, including the effect of employment changes not induced by policy reforms. The application of the decomposition to Australia reveals that the direct effect of tax‐transfer policy reforms accounts for half of the observed increase in income inequality between 1999 and 2008, while the increased dispersion of wages and capital incomes also played an important role.