Using Effluent Charges in Promoting Investment in Water Pollution Control Technology: A Model of Coordination Failure among Firms

Untreated wastewater being directly discharged into rivers is a very harmful environmental hazard that needs to be tackled urgently in many countries. In order to safeguard the river ecosystem and reduce water pollution, it is important to have an effluent charge policy that promotes the investment of wastewater treatment technology by domestic firms. This paper considers the strategic interaction between the government and the domestic firms regarding the investment in the wastewater treatment technology and the design of optimal e­ffluent charge policy that should be implemented. In this model, the higher is the proportion of non-investing firms, the higher would be the probability of having to incur an e­ffluent charge and the higher would be that charge. On one hand the government needs to impose a sufficiently strict policy to ensure that firms have strong incentive to invest. On the other hand, it cannot be too strict that it drives out firms which cannot afford to invest in such expensive technology. The paper analyses the factors that affect the probability of investment in this technology. It also explains the difficulty of imposing a strict environment policy in countries that have too many small firms which cannot afford to invest unless subsidised.

Universal banking, competition and risk in a macro model

A stylized macroeconomic model is developed with an indebted, heterogeneous Investment Banking Sector funded by borrowing from a retail banking sector. The government guarantees retail deposits. Investment banks choose how risky their activities should be. We compared the benefits of separated vs. universal banking modelled as a vertical integration of the retail and investment banks. The incidence of banking default is considered under different constellations of shocks and degrees of competitiveness. The benefits of universal banking rise in the volatility of idiosyncratic shocks to trading strategies and are positive even for very bad common shocks, even though government bailouts, which are costly, are larger compared to the case of separated banking entities. The welfare assessment of the structure of banks may depend crucially on the kinds of shock hitting the economy as well as on the efficiency of government intervention.

The past, present and future of central banking

The financial crisis, on the one hand, and the recourse to ‘unconventional’ monetary policy, on the other, have given a sharp jolt to perceptions of the role and status of central banks. In this paper we start with a brief ‘contrarian’ history of central banks since the second world war, which presents the Great Moderation and the restricted focus on inflation targeting as a temporary aberration from the norm. We then discuss how recent developments in fiscal and monetary policy have affected the role and status of central banks, notably their relationships with governments, before considering the environment central banks will face in the near and middle future and how they will have to change to address it.

Caught Between Theory and Practice: Government, Market, and Regulatory Failure in Electricity Sector Reforms

The world-wide electricity sector reforms of the early 1990s have revealed the considerable complexities of making market driven reforms in network and infrastructure industries. This paper reflects on the experiences to date with the process and outcomes of marketbased electricity reforms across less-developed, transition and developed economies. The reforms outcomes suggest similar problems facing the electricity sector of these countries though their contexts vary significantly. Many developing and developed economies continue to have investment inadequacy concerns and the need to balance economy efficiency, sustainability and social equity after more than two decades of experience with reforms. We also use a case study of selected countries that in many respects represent the current state of the reform though they are rarely examined. Nepal, Belarus and Ireland are chosen as country-specific case studies for this purpose. We conclude that the changing dynamics of the electricity supply industry (ESI) and policy objectives imply that analysing the success and failure of reforms will indeed remain a complex process.