Valuing Flexibility: The case of an Integrated Gasification Combined Cycle Power Plant

In this paper we analyze the valuation of options stemming from the flexibility in an Integrated Gasification Combined Cycle (IGCC) Power Plant. First we use as a base case the opportunity to invest in a Natural Gas Combined Cycle (NGCC) Power Plant, deriving the optimal investment rule as a function of fuel price and the remaining life of the right to invest. Additionally, the analytical solution for a perpetual option is obtained. Second, the valuation of an operating IGCC Power Plant is studied, with switching costs between states and a choice of the best operation mode. The valuation of this plant serves as a base to obtain the value of the option to delay an investment of this type. Finally, we derive the value of an opportunity to invest either in a NGCC or IGCC Power Plant, that is, to choose between an inflexible and a flexible technology, respectively. Numerical computations involve the use of one- and two-dimensional binomial lattices that support a mean-reverting process for the fuel prices. Basic parameter values refer to an actual IGCC power plant currently in operation.

Selectivity, pulse fishing and endogenous lifespan in Beverton-Holt models

Optimal management in a multi-cohort Beverton-Holt model with any number of age classes and imperfect selectivity is equivalent to finding the optimal fish lifespan by chosen fallow cycles. Optimal policy differs in two main ways from the optimal lifespan rule with perfect selectivity. First, weight gain is valued in terms of the whole population structure. Second, the cost of waiting is the interest rate adjusted for the increase in the pulse length. This point is especially relevant for assessing the role of selectivity. Imperfect selectivity reduces the optimal lifespan and the optimal pulse length. We illustrate our theoretical findings with a numerical example. Results obtained using global numerical methods select the optimal pulse length predicted by the optimal lifespan rule.

A Novel Scheduling Index Rule Proposal for QoE Maximization in Wireless Networks

This paper deals with the resource allocation problem aimed at maximizing users' perception of quality in wireless channels with time-varying capacity. First of all, we model the subjective quality-aware scheduling problem in the framework of Markovian decision processes. Then, given that the obtaining of the optimal solution of this model is unachievable, we propose a simple scheduling index rule with closed-form expression by using a methodology based on Whittle approach. Finally, we analyze the performance of the achieved scheduling proposal in several relevant scenarios, concluding that it outperforms the most popular existing resource allocation strategies.

Pulse vs. Optimal Stationary Fishing: The Northern Stock of Hake

Pulse fishing may be a global optimal strategy in multicohort fisheries. In this article we compare the pulse fishing solutions obtained by using global numerical methods with the analytical stationary optimal solution. This allows us to quantify the potential benefits associated with the use of periodic fishing in the Northern Stock of hake. Results show that: first, management plans based exclusively on traditional reference targets as Fmsy may drive fishery economic results far from the optimal; second, global optimal solutions would imply, in a cyclical manner, the closure of the fishery for some periods and third, second best stationary policies with stable employment only reduce optimal present value of discounted profit in a 2%.

On the Informational Role of Term Structure in the U.S. Monetary Policy Rule

This paper uses a structural approach based on the indirect inference principle to estimate a standard version of the new Keynesian monetary (NKM) model augmented with term structure using both revised and real-time data. The estimation results show that the term spread and policy inertia are both important determinants of the U.S. estimated monetary policy rule whereas the persistence of shocks plays a small but significant role when revised and real-time data of output and inflation are both considered. More importantly, the relative importance of term spread and persistent shocks in the policy rule and the shock transmission mechanism drastically change when it is taken into account that real-time data are not well behaved.

Reference Points and Optimal Management in Stochastic Age-Structured Fisheries Models

The purpose of this article is to characterize dynamic optimal harvesting trajectories that maximize discounted utility assuming an age-structured population model, in the same line as Tahvonen (2009). The main novelty of our study is that uses as an age-structured population model the standard stochastic cohort framework applied in Virtual Population Analysis for fish stock assessment. This allows us to compare optimal harvesting in a discounted economic context with standard reference points used by fisheries agencies for long term management plans (e.g. Fmsy). Our main findings are the following. First, optimal steady state is characterized and sufficient conditions that guarantees its existence and uniqueness for the general case of n cohorts are shown. It is also proved that the optimal steady state coincides with the traditional target Fmsy when the utility function to be maximized is the yield and the discount rate is zero. Second, an algorithm to calculate the optimal path that easily drives the resource to the steady state is developed. And third, the algorithm is applied to the Northern Stock of hake. Results show that management plans based exclusively on traditional reference targets as Fmsy may drive fishery economic results far from the optimal.

A note on collusion sustainability with optimal punishments and detection lags

In this note we characterize optimal punishments with detection lags when the market consists of n oligopolistic firms. We extend a previous note by Colombo and Labrecciosa (2006) [Colombo, L., and Labrecciosa, P., 2006. Optimal punishments with detection lags. Economic Letters 92, 198-201] to show how in the presence of detection lags optimal punish- ments fail to restore cooperation also in markets with a low number of firms.

The New Keynesian Monetary Model: Does it Show the Comovement Between Output and Inflation in the U.S.?

Published as article in: Journal of Economic Dynamics and Control (2008), 32(May), pp. 1466-1488.

How Does the New Keynesian Monetary Model Fit in the U.S. and the Eurozone? an Indirect Inference Approach

This paper estimates a standard version of the New Keynesian monetary (NKM) model under alternative specifications of the monetary policy rule using U.S. and Eurozone data. The estimation procedure implemented is a classical method based on the indirect inference principle. An unrestricted VAR is considered as the auxiliary model. On the one hand, the estimation method proposed overcomes some of the shortcomings of using a structural VAR as the auxiliary model in order to identify the impulse response that defines the minimum distance estimator implemented in the literature. On the other hand, by following a classical approach we can further assess the estimation results found in recent papers that follow a maximum-likelihood Bayesian approach. The estimation results show that some structural parameter estimates are quite sensitive to the specification of monetary policy. Moreover, the estimation results in the U.S. show that the fit of the NKM under an optimal monetary plan is much worse than the fit of the NKM model assuming a forward-looking Taylor rule. In contrast to the U.S. case, in the Eurozone the best fit is obtained assuming a backward-looking Taylor rule, but the improvement is rather small with respect to assuming either a forward-looking Taylor rule or an optimal plan.

Term Structure and the Estimated Monetary Policy Rule in the Eurozone

Published as an article in: Spanish Economic Review, 2008, vol. 10, issue 4, pages 251-277.

Optimal Correction for Guessing in Multiple-Choice Tests

Building on Item Response Theory we introduce students’ optimal behavior in multiple-choice tests. Our simulations indicate that the optimal penalty is relatively high, because although correction for guessing discriminates against risk-averse subjects, this effect is small compared with the measurement error that the penalty prevents. This result obtains when knowledge is binary or partial, under different normalizations of the score, when risk aversion is related to knowledge and when there is a pass-fail break point. We also find that the mean degree of difficulty should be close to the mean level of knowledge and that the variance of difficulty should be high.

Optimal fiscal policy in a multisector model with minimum expenditure requirements

This paper investigates optimal fiscal policy in a static multisector model. A Ramsey type planner chooses tax rates on each good type as well as spending levels on each good type subject to an exogenous total expenditure constraint and requirements that some minimum amount of spending be undertaken in each sector. It is shown that optimal policy does not equally spend in each sector but instead results in one of the minimum expenditure constraints binding.

Optimal Minimum Wage in a Competitive Economy: an Alternative Modelling Approach

This paper analyzes whether a minimum wage can be an optimal redistribution policy when distorting taxes and lump-sum transfers are also available in a competitive economy. We build a static general equilibrium model with a Ramsey planner making decisions on taxes, transfers, and minimum wage levels. Workers are assumed to differ only in their productivity. We find that optimal redistribution may imply the use of a minimum wage. The key factor driving our results is the reaction of the demand for low skilled labor to the minimum wage law. Hence, an optimal minimum wage appears to be most likely when low skilled households are scarce, the complementarity between the two types of workers is large or the difference in productivity is small. The main contribution of the paper is a modelling approach that allows us to adopt analysis and solution techniques widely used in recent public finance research. Moreover, this modelling strategy is flexible enough to allow for potential extensions to include dynamics into the model.

Optimal Fiscal Policy with Rationing in the Labor Market

Published as an article in: Topics in Macroeconomics, 2005, vol. 5, issue 1, article 17.

The role of the term spread in an augmented Taylor rule: An empirical investigation

Using US data for the period 1967:5-2002:4, this paper empirically investigates the performance of an augmented version of the Taylor rule (ATR) that (i) allows for the presence of switching regimes, (ii) considers the long-short term spread in addition to the typical variables, (iii) uses an alternative monthly indicator of general economic activity suggested by Stock and Watson (1999), and (iv) considers interest rate smoothing. The estimation results show the existence of switching regimes, one characterized by low volatility and the other by high volatility. Moreover, the scale of the responses of the Federal funds rate to movements in the term spread, inflation and the economic activity index depend on the regime. The estimation results also show robust empirical evidence that the ATR has been more stable during the term of office of Chairman Greenspan than in the pre-Greenspan period. However, a closer look at the Greenspan period shows the existence of two alternative regimes and that the response of the Fed funds rate to inflation has not been significant during this period once the term spread is considered.