Simple-Offer vs. Complex-Offer Auctions in Deregulated Electricity Markets

In my recent experimental research of wholesale electricity auctions, I discovered that the complex structure of the offers leaves a lot of room for strategic behavior, which consequently leads to anti- competitive and inefficient outcomes in the market. A specific feature of these complex-offer auctions is that the sellers submit not only the quantities and the minimum prices at which they are willing to sell, but also the start-up fees that are designed to reimburse the fixed start-up costs of the generation plants. In this paper, using the experimental method I compare the performance of two complex-offer auctions (COAs) against the performance of a simple-offer auction (SOA), in which the sellers have to recover all their generation costs --- fixed and variable ---through a uniform market-clearing price. I find that the SOA significantly reduces consumer prices and lowers price volatility. It mitigates anti-competitive effects that are present in the COAs and achieves allocative efficiency more quickly.

A Comparison of Two-Market Bertrand Duopoly and Two-Market Cournot Duopoly

In a two-market Bertrand duopoly,each of two firms chooses one of two markets and a price in that market. All four choices are made simultaneously. In a two-market Cournot duopoly, the firms choose quantities rather than prices.It is well known that in the one-market case the threat of price undercutting means that Bertrand equilibrium prices and profits will be lower and quantities higher than Cournot equilibrium prices, profits and quantities.We find a quite different consequence of price undercutting in two-market duopoly. In the two-market case the threat of price undercutting means that Bertrand equilibria are in continuous mixed strategies, while every Cournot duopoly has an equilibrium in pure strategies, or in strategies that are pure in each market.

Asset Pricing with Heterogeneous Agents, Incomplete Markets and Trading Constraints

The consumption capital asset pricing model is the standard economic model used to capture stock market behavior. However, empirical tests have pointed out to its inability to account quantitatively for the high average rate of return and volatility of stocks over time for plausible parameter values. Recent research has suggested that the consumption of stockholders is more strongly correlated with the performance of the stock market than the consumption of non-stockholders. We model two types of agents, non-stockholders with standard preferences and stock holders with preferences that incorporate elements of the prospect theory developed by Kahneman and Tversky (1979). In addition to consumption, stockholders consider fluctuations in their financial wealth explicitly when making decisions. Data from the Panel Study of Income Dynamics are used to calibrate the labor income processes of the two types of agents. Each agent faces idiosyncratic shocks to his labor income as well as aggregate shocks to the per-share dividend but markets are incomplete and agents cannot hedge consumption risks completely. In addition, consumers face both borrowing and short-sale constraints. Our results show that in equilibrium, agents hold different portfolios. Our model is able to generate a time-varying risk premium of about 5.5% while maintaining a low risk free rate, thus suggesting a plausible explanation for the equity premium puzzle reported by Mehra and Prescott (1985).

Emissions Control and the Regulation of Product Markets: The Case of Automobiles

The paper investigates alternative policies to regulate emissions from polluting product markets, specifically considering the case of the automobiles market. The two policies we consider are: a quota that limits the quantity produced of the polluting model and a more flexible average efficiency standard that requires a minimum energy efficiency across all models produced by a firm, similar to the US Corporate Average Fuel Economy (CAFE) standards. We use a duopoly model of vertical differentiation where firms produce both an economy (i.e., low polluting) version and a luxury (i.e., high polluting) version of a given product. We show that while a quota can raise firm profit over a certain range, CAFE always reduces firm profit relative to the pre-regulation. We also show that while the quota reduces emissions, it is possible that emissions increase under CAFE. The optimal policy choice will depend on the magnitude of unit damages. We show that when unit damages are sufficiently high, the quota policy is more efficient than the average efficiency standard. This suggests that instead of tightening CAFE to limit damages from emissions, policy makers can shift to a quota policy which is both welfare enhancing and more profitable for firms.

Institutional Development of Capital Markets in Nine Asian Economies

This paper is conducting a comparative analysis of the development of securities markets in nine Asian economies: Korea, Taiwan, Hong Kong, Singapore, Malaysia, Thailand, Indonesia, the Philippines, and China. This study focuses on two aspects: the history and institutional development of securities market, such as legal systems, payment systems, etc. From the analyses, this paper reveals several common features of the development of securities markets in nine Asian economies. First, most economies had an informal capital market in the early period of their history. Second, the background of the foundation of their official markets was influenced by experiences of colonization. Third, most governments recognized the importance of the capital market for economic development and had a positive attitude in promoting the market. Fourth, statistics clearly showed that most economies experienced several booms in their capital market from the late 1980s.

Innovations in the video game industry: changing global markets

The paper examines the video game industry in the perspective of being the paradigm of innovation in digital media and content. In particular, it analyses the response to two main factors that have impacted this industry over the last decade. First, it tracks the evolution of its global market and its emerging geography with the rise of Asia. Second, within this global landscape the paper explores how the changes derived from mobile and on-line gaming enabled major transformations of this industry. From here, some conclusions on the lessons from the evolution of this sector for the whole media and content industries are presented.

Two different but related mechanisms are used in plants for the repair of genomic double-strand breaks by homologous recombination.

Genomic double-strand breaks (DSBs) are key intermediates in recombination reactions of living organisms. We studied the repair of genomic DSBs by homologous sequences in plants. Tobacco plants containing a site for the highly specific restriction enzyme I-Sce I were cotransformed with Agrobacterium strains carrying sequences homologous to the transgene locus and, separately, containing the gene coding for the enzyme. We show that the induction of a DSB can increase the frequency of homologous recombination at a specific locus by up to two orders of magnitude. Analysis of the recombination products demonstrates that a DSB can be repaired via homologous recombination by at least two different but related pathways. In the major pathway, homologies on both sides of the DSB are used, analogous to the conservative DSB repair model originally proposed for meiotic recombination in yeast. Homologous recombination of the minor pathway is restricted to one side of the DSB as described by the nonconservative one-sided invasion model. The sequence of the recombination partners was absolutely conserved in two cases, whereas in a third case, a deletion of 14 bp had occurred, probably due to DNA polymerase slippage during the copy process. The induction of DSB breaks to enhance homologous recombination can be applied for a variety of approaches of plant genome manipulation.

Modelling and testing volatility spillovers in oil and financial markets for USA, UK and China

The primary purpose of the paper is to analyze the conditional correlations, conditional covariances, and co-volatility spillovers between international crude oil and associated financial markets. The paper investigates co-volatility spillovers (namely, the delayed effect of a returns shock in one physical or financial asset on the subsequent volatility or co-volatility in another physical or financial asset) between the oil and financial markets. The oil industry has four major regions, namely North Sea, USA, Middle East, and South-East Asia. Associated with these regions are two major financial centers, namely UK and USA. For these reasons, the data to be used are the returns on alternative crude oil markets, returns on crude oil derivatives, specifically futures, and stock index returns in UK and USA. The paper will also analyze the Chinese financial markets, where the data are more recent. The empirical analysis will be based on the diagonal BEKK model, from which the conditional covariances will be used for testing co-volatility spillovers, and policy recommendations. Based on these results, dynamic hedging strategies will be suggested to analyze market fluctuations in crude oil prices and associated financial markets.

Access Barriers to Services Markets: Mapping, tracing, understanding and measuring. CEPS Special Report No. 77, June 2013

EU and national policy-makers argue that the single services market is a key to EU growth, but that many barriers to services market access remain. Grasping the scope, nature and economic meaning of these barriers, however, has proven rather difficult. This is exactly what the present CEPS Special Report helps the reader to do. We trace all market access barriers in services, as far as the data allow, and attempt to understand their nature and economic meaning (given that they are usually forms of domestic regulation) and discuss aspects of the measurement of restrictiveness. We make a sharp distinction between market access barriers restrictions in a non-EU WTO/GATS environment and intra-EU ones, and demonstrate the significant difference in ambition between the two. The paper specifies in detail the progress made by the EU's horizontal reform in services markets, documenting the removal of many cross-border obstacles to trade in services and establishment. Finally, following these conceptual and descriptive analyses, a brief assessment of access restrictiveness indices is provided for both the non-EU WTO environment and for intra-EU services access barriers.

Productivity and Credit Constraints: Firm-Level Evidence from Propensity Score Matching. Factor Markets Working Paper No. 3, September 2011

Drawing on a unique, farm-level panel dataset with 37,409 observations and employing a matching estimator, this paper analyses how farm access to credit affects farm input allocation and farm efficiency in the Central and Eastern European transition countries. We find that farms are asymmetrically credit constrained with respect to inputs. Farm use of variable inputs and capital investment increases up to 2.3% and 29%, respectively, per €1,000 of additional credit. Our estimates also suggest that farm access to credit increases total factor productivity up to 1.9% per €1,000 of additional credit, indicating that an improvement in access to credit results in an adjustment in the relative input intensities on farms. This finding is further supported by a negative effect of better access to credit on labour, suggesting that these two are substitutes. Interestingly, farms are found not to be credit constrained with respect to land.

The Valuation of Agricultural Land and the Influence of Government Payments. Factor Markets Working Paper No. 10, December 2011

This study gives an overview of the theoretical foundations, empirical procedures and derived results of the literature identifying determinants of land prices. Special attention is given to the effects of different government support policies on land prices. Since almost all empirical studies on the determination of land prices refer either to the net present value method or the hedonic pricing approach as a theoretical basis, a short review of these models is provided. While the two approaches have different theoretical bases, their empirical implementation converges. Empirical studies use a broad range of variables to explain land values and we systematise those into six categories. In order to investigate the influence of different measures of government support on land prices, a meta-regression analysis is carried out. Our results reveal a significantly higher rate of capitalisation for decoupled direct payments and a significantly lower rate of capitalisation for agri-environmental payments, as compared to the rest of government support. Furthermore, the results show that taking theoretically consistent land rents (returns to land) and including non-agricultural variables like urban pressure in the regression implies lower elasticities of capitalisation. In addition, we find a significant influence of the land type, the data type and estimation techniques on the capitalisation rate.

Commonalities and Differences in Labour Market Developments and Constraints in Different EU Regions. Factor Markets Working Paper No. 22, February 2012

This paper provides a detailed overview of the differences across EU member states’ labour markets, through the extensive use of descriptive statistics. The objective is two-fold: firstly, it identifies the commonalities and differences in rural labour markets across EU regions and their developments, with special regard to agriculture, and secondly it emphasises the constraints that may hinder the efficient functioning of labour markets. Therefore, the paper starts with a description of the main indicators in the general labour market theory, such as the structure of the population in terms of age and gender distribution, unemployment and activity rates, employment levels, quality of human capital, migration patterns, and so forth. Secondly, we focus on the differences among rural and urban areas to then look closely at the agricultural sector. The institutional framework in which labour market institutions operate is also included. Lastly, as an attempt to summarise the analysis and to classify the EU member states according to certain rural and specific agricultural indicators, cluster analysis is also employed. Policy implications include investment in human capital and vocational training, support to young farmers, promoting economic diversification and upgrading infrastructure, with special regard to the new member states and to the Southern parts of Europe.

Factor Markets in Applied Equilibrium Models: The current state and planned extensions towards an improved presentation of factor markets in agriculture. Factor Markets Working Paper No. 23, February 2012

This paper describes how factor markets are presented in applied equilibrium models and how we plan to improve and to extend the presentation of factor markets in two specific models: MAGNET and ESIM. We do not argue that partial equilibrium models should become more ‘general’ in the sense of integrating all factor markets, but that the shift of agricultural income policies to decoupled payments linked to land in the EU necessitates the inclusion of land markets in policy-relevant modelling tools. To this end, this paper outlines options to integrate land markets in partial equilibrium models. A special feature of general equilibrium models is the inclusion of fully integrated factor markets in the system of equations to describe the functionality of a single country or a group of countries. Thus, this paper focuses on the implementation and improved representation of agricultural factor markets (land, labour and capital) in computable general equilibrium (CGE) models. This paper outlines the presentation of factor markets with an overview of currently applied CGE models and describes selected options to improve and extend the current factor market modelling in the MAGNET model, which also uses the results and empirical findings of our partners in this FP project.

Labour Supply Curves for EU Member and Candidate States: An applied general equilibrium analysis. Factor Markets Working Paper No. 26, June 2012

This paper introduces a more sophisticated modelling of the labour market functioning of the European member and candidate states through the introduction of labour supply curves in an applied general equilibrium model. A labour supply curve offers a middle way in labour supply modelling, sitting between the two commonly adopted extremes of spare capacity and full employment. The first part of the paper outlines the theoretical foundation of the labour supply curve. Real world data is then used to derive labour supply curves for each member state, along with Croatia and Turkey. Finally, the impact of the newly specified labour markets on the results of an illustrative scenario involving reform of the common agricultural policy is explored. The results of computable general equilibrium analysis with the labour supply curve confirm the theoretical expectation that modelling the labour supply through an upwards-sloping curve produces results that lie between the extremes of spare capacity of the labour factor and fully employed labour. This specification captures a greater degree of heterogeneity in the labour markets of the member and candidate states, allowing for a more nuanced modelling of the effects of policy reform, including welfare effects.

Does the Common Agricultural Policy Reduce Farm Labour Migration? Panel data analysis across EU regions. Factor Markets Working Paper No. 28, July 2012

This paper deals with the determinants of labour out-migration from agriculture across 149 EU regions over the 1990–2008 period. The central aim is to shed light on the role played by payments from the common agricultural policy (CAP) on this important adjustment process. Using static and dynamic panel data estimators, we show that standard neoclassical drivers, like relative income and the relative labour share, represent significant determinants of the intersectoral migration of agricultural labour. Overall, CAP payments contributed significantly to job creation in agriculture, although the magnitude of the economic effect was rather moderate. We also find that pillar I subsidies exerted an effect approximately two times greater than that of pillar II payments.