Optimal policies to preserve tropical forests Preliminary draft


 Merilyn Garrison
 2 years ago
 Views:
Transcription
1 Opimal policies o preserve ropical foress Preliminary draf Gilles Laorgue and Helene Ollivier February 1, 211 Absrac We develop a Norh/Souh growh model o invesigae he normaive quesion of inernaional ransfers o preserve ropical foress. The Souh convers fores lands ino agriculural lands o produce a nal consumpion good which is consumed by he Norh. We consider wo ways of incorporaing he exernaliy coming from deforesaion in he uiliy of he Norh: i) hrough an ameniy value, which reecs a coninuous willingness o preserve foress, or ii) hrough a minimum sock of ropical foress o be preserved. Firs, we solve he opimal program and we characerize he dynamic properies of he opimal deforesaion regime. Second, we derive he decenralized equilibrium oucome in which he exernaliy can be correced by a ransfer scheme from he Norh o he Souh. This ransfer funcion depends boh on he sock of fores (posiively) and on he deforesaion rae (negaively). Third, we characerize he dynamic implemenaion rule which mus be saised by his ransfer o resore he opimum. Finally, we analyze he specic cases of a pure fores subsidy policy and a pure deforesaion axaion policy and we illusrae hese ndings wih an analyical specied model. Keywords: REDD mechanism, deforesaion, dynamics, opimal regulaion, ax, subsidy. JEL classicaions: Q23, Q27, Q28. 1 Inroducion Reducing emissions from deforesaion and fores degradaion (REDD) in developing counries has been recenly a he cener of negoiaions on a renewed climae regime. Deforesaion in ropical counries is responsible for abou a quarer of oal world carbon emissions Toulouse School of Economics (INRALERNA). 21 allee de Brienne, 31 Toulouse, France. address: Deparmen of Agriculural and Resource Economics, Universiy of California, Berkeley. address: 1
2 and represen he main source of emissions in some developing counries. Reducing deforesaion could oer boh environmenal gains as a miigaion opion and an opporuniy o inegrae developing counries ino he inernaional negoiaions on climae change. An ocial agreemen has been recenly achieved on he REDD (or REDD+) mechanism during he UNFCCC conference of he Paries in Cancun, in December 21, as regards is scope, eligible aciviies, safeguards, and mehodological issues. 1 Agreeing on safeguards represen a major achievemen due o complex governance and insiuional issues, ha includes respec for he righs of Indigenous Peoples and local communiies, fores governance, and acions ha are consisen wih conservaion of naural foress and biodiversiy. To be par of he REDD mechanism, counries need o underake aciviies according o a phased approach. In he rs phase called readiness, counries develop naional sraegies, assess naional reference emission levels, and implemen a robus and ransparen naional fores monioring sysems. In he second phase, counries implemen heir naional policies aiming a preserving ropical foress. In he hird phase, counries can receive performancebased incenive paymens, ha is, paymens for veried emissions reducions. Designing he performancebased incenive scheme is one of he imporan challenges of he REDD mechanism, bu i also oers beer prospecs for realizing fores preservaion oucomes han mos previous fores policy inervenions (Pfa e al., 21). Since REDD projecs are mosly in heir infancy, resulbased incenive schemes have hardly been implemened, apar from he large bilaeral programs of Norway in Brazil, Indonesia, Guyana and Tanzania. As illusraed by he Amazon Fund, donaions (USD 1 billion) are linked direcly o resuls, i.e. o emission rends. 2 More precisely, paymens in a paricular year will depend on he dierence beween emissions from deforesaion in he previous year and a reference level, which is he average for he curren enyear calculaion period, and which is updaed every ve years. If emissions in a paricular year are higher han he reference level, no paymen will be made o he Amazon fund in he subsequen year. Hence, his scheme ress on expos evaluaion of he emissions due o deforesaion, and respecs naional sovereigny since he fund is managed by he Brazilian Developmen Bank (BNDES). However, he incenive scheme ha performs well for Brazil 1 See REDD sands for Reducing emissions from deforesaion and degradaion, whereas REDD+, in addiion o REDD, includes enhancing fores carbon socks hrough aciviies such as fores conservaion, fores resoraion and susainable fores managemen (Angelsen e al., 29; Kanowski e al., 21). 2 See Norwegian iniiaive on hp://www.regjeringen.no/en/dep/md/selecedopics/climae/hegovernmenofnorwaysinernaional/norwayamazonfund.hml; and more deails on he Amazon Fun on hp://www.amazonfund.gov.br/fundoamazonia/fam/sie_en/ 2
3 is unlikely o sui Guyana, where deforesaion hardly occurs despie he large ropical fores. In his conex, Norway has oered up o USD 25 millions for preserving he sock of fores in Guyana. The design of he incenive scheme is crucial o avoid emissions from deforesaion, and i needs o ake ino consideraion boh he sock of fores and he rae of deforesaion depending on he characerisics of he recipien counries. To address he quesion of he design of he REDD mechanism, we develop a growh model wih deforesaion in a fores abundan economy ha will receive a ransfer from he inernaional communiy. Assuming ha deforesaion generaes a global exernaliy ha aecs he welfare of he inernaional communiy, we analyze he opimal policies ha resore he social opimum in a decenralized seing where he recipien economy does no immediaely suer from he exernaliy. We adop several simplifying assumpions. Firs, he analysis is held in parial equilibrium since we are only considering one producive secor in he recipien economy, and he secor is expororiened since all producs are consumed by he Norh. We make his assumpion wih he case of Brazilian expors of soybeans, Indonesian expors of palm oil, and expors of ropical wood and biofuels from ropical counries in mind. These producs are ofen linked o deforesaion paerns in ropical counries. This leads us o our second assumpion: we assume ha agriculure is he main driver for deforesaion, ha is, foresed lands are cleared for producive purpose, and agriculural expansion is fueling growh in ropical counries. In his conex, reducing deforesaion may have derimenal impacs on growh rends and requires ha he counry will be compensaed for he opporuniy coss of no clearing land for agriculure. The hird assumpion is ha only he inernaional communiy (rich indusrialized counries) or he Norh is willing o preserve ropical foress. I reecs he fac ha ropical counries are developing counries, hence heir prioriy is developmen even hough hey face a radeo beween environmenal preservaion and developmen. We consider wo ways of incorporaing he exernaliy in he uiliy of he Norh: hrough an ameniy value made explici in consumers' preferences, or hrough an environmenal hreshold. Norhern consumers are aeced by a loss in ameniy value when he sock of ropical foress is reduced. This reecs a coninuous willingness o preserve ropical foress. Since foress are sequesraing carbon and conribue o climae sabiliy, we can also relae he amospheric carbon cap ha climae scieniss recommend no o overshoo o avoid high climae disrupions wih a minimum sock of ropical foress o be preserved. The inuiion is ha, if he sock of ropical fores is reduced beyond his hreshold, he loss of carbon sequesraion sinks and he carbon released ino he amosphere by deforesaion would induce 3
4 some caasrophic damages. Ineresingly, he Norh faces a radeo beween preserving ropical foress and consuming goods ha are produced in deforesing counries. Finally, he fourh assumpion deermines how o implemen he REDD mechanism so ha he ropical counry would reduce is deforesaion rends. Since here is no consensus on he mos appropriae ransfer scheme in he lieraure, we consider ha he ransfer can depend boh on he sock of fores or on he rae of deforesaion. We obain ha... To he bes of our knowledge, he lieraure on paymens for preserving ropical foress has no proposed an opimal incenive scheme in he conex of a growh model wih deforesaion. I can serve as a benchmark for he negoiaions beween Norhern donors (e.g. Norway) and he recipien ropical counries. Using a renewable resource model, Sähler (1996) compares wo ransfer schemes aiming a preserving a fores sock, and concludes ha he scheme which oers a consan price per hecare of fores is more ecien han he scheme which oers a compensaion price ha rises wih fores scarciy, when foresabundan counries adop sraegic behaviors. van Soes and Lensink (2) use a ransfer scheme ha depends on boh he sock of fores and he rae of deforesaion o show ha penalizing he rise in he rae of deforesaion can be ecien for limiing and posponing carbon emissions from deforesing. The more recen debae on he evaluaion of he opporuniy coss of REDD projecs reveals ha he willingness o nance fores preservaion depends crucially on he expeced benes in erms of carbon emission reducions (Myers, 27; Eliasch, 28). Many drawbacks limi he expeced carbon emission reducions: carbon sequesraion in fores is no permanen; here is a risk ha deforesaion will move oward non paricipaing counries, leading o carbon leakage; and he governance issue is ofen problemaic in ropical developing counries, implying a high risk ha he ransfer will be divered o corrupion and renseeking (Myers, 27). We absrac from hese issues by considering only one recipien economy characerized wih neiher marke nor insiuional failures. The remainder of he paper is organized as follows. Secion 2 presens he simple model of growh wih deforesaion. Secion 3 presens he opimum, ha is, wha would be he opimal deforesaion rends for he consumers who are consuming he good ha is responsible for he exernaliy. Secion 4 presens he opimal behaviors of he producing Souh and of he consuming Norh, and secion 5 describes he incenive mechanism ha is required o resore he opimum in his conex. Secion 6 illusraes wih a specied model, and secion 7 provides concluding remarks. 4
5 2 The model Consider a fores abundan economy wih an inniely lived represenaive agen. economy is composed of one secor, whose produc is consumed. Only one facor of producion, land, is required, bu we disinguish beween old agriculural land and newly deforesed land, he laer being more producive han he former. And deforesing generaes an exernaliy suered by he represenaive consumer. In our economy, deforesaion is enirely driven by agriculural expansion. We focus on he issue of land allocaion beween a producive land use and an "idle" land use, hence we neglec sources of revenue from fores such as imber producion van Soes and Lensink (2). We assume ha deforesaion is irreversible, ha is, once a hecare of fores has been cleared, i is used for agriculure and hus fores canno regrow. Following Harwick e al. (21), he clearing process is represened as a sicky adjusmen of endowmens, where he sock of "unproducive" fores F decreases while he sock of agriculural land A rises, since he economy has iniially "oo much" foresed land (large F ). The dynamics is The F = h = A, (1) where h denoes he rae of deforesaion or he amoun of newly cleared land a period, and F and A are given. Given he oal amoun of land L in he economy, we have for any : L = F + A. (2) The producion funcion of he agriculural secor, whose produc x is homogeneous, akes he following form: x = f(a, h ) (3) where boh he sock of agriculural land, A, and he newly deforesed land, h, are facors of producion. We assume ha heir produciviy dier since he clearing and burning of biomass creae a boos in produciviy in newly deforesed land, due o he release of nuriens from ashes. The feriliy gap only lass one period, and afer one period, he land falls ino he sock of agriculural land whose produciviy is normalized o one. The parial derivaives of he producion funcion wih respec o agriculural land and o newly cleared land are denoed by f A and f h, respecively. We assume ha echnology f(.) exhibis decreasing reurns o scale, since here is only one inpu considered (land). The use of inpus is no cosly, since he resource is in open access and once deforesed he land is owned by he producer. 5
6 The enire producion of he homogeneous good is consumed by he represenaive household. Since his preferences exhibi ameniy values, his insananeous uiliy funcion U(.) depends boh on his consumpion x and on he sock of ropical fores F. Denoe by W he ineremporal uiliy funcion, which is dened by: W = U(x, F )e ρ d (4) where ρ is he social discoun rae, which is assumed o be consan. The parial derivaives of he insananeous uiliy funcion wih respec o consumpion and o fores preservaion are denoed by U x and U F, and hey are boh posiive. We also assume ha he funcion U(.) is sricly concave and saises he Inada condiions. We do no need o make any assumpion on he sign of he cross derivaive U xf. 3 To avoid any environmenal caasrophe, we assume ha he sock of fores, F, needs o say above a minimum F or, equivalenly, ha he sock of deforesed land A needs o remain inferior o a hreshold Ā = L F. Hence, we have F F A Ā,, (5) wih F < F and Ā > A. Assuming < F < L implies ha < Ā < L. Combining his consrain wih he ameniy value of he fores implies ha he following disconinuous welfare funcion V (x, F ) capures he wofold represenaion of he exernaliy from deforesing: { U(x, F ), if F F x, V (x, F ) = (6), if F < F 3 The opimum The social planner chooses he deforesaion pah h ha maximizes he ineremporal uiliy W subjec o (3)(2), (5) and o he nonnegaiviy consrain h. The exended Hamilonian (in curren value) of his onesaevariable problem is: H = U(x, F ) + λ h + µ h + η (Ā A ) (7) where λ is he cosae variable associaed wih agriculural land accumulaion, and µ and η are he Lagrangian mulipliers associaed wih he nonnegaiviy consrain on he 3 The erm U xf measures he degree of subsiuion or complemenariy beween consumpion and naural capial preservaion in welfare. In he Michel and Roillon (1996) erminology, he uiliy funcion exhibis a "compensaion eec" if U xf < (i.e. a decrease in naural capial implies an increase in he marginal uiliy of consumpion ha leads sociey o consume more) and a "disgus eec" if U xf >. 6
7 deforesaion rae and wih he fores hreshold consrain, respecively. The saic and dynamic rsorder condiions are: and he ransversaliy condiion is given by and he complemenary slackness condiions are U x f h = λ µ (8) λ = ρλ U x f A + U F + η, (9) lim e ρ λ A =, (1) µ h =, µ, h (11) η (Ā A) =, η, A Ā. (12) Condiion (8) implies ha he marginal gain of deforesaion in erms of uiliy, which is relaed o an increase in consumpion, mus be equal o he social marginal cos of deforesaion, λ, as long as h >. Denoe by φ(f, h ) U x f h he marginal gain of deforesaion. Inegraing he dierenial equaion (9) from up o yields: [ ] λ = λ + (U F + η s U x f A )e ρs ds e ρ (13) From he ransversaliy condiion (1), i implies ha λ = (U F + η s U x f A )e ρs ds, which leads o λ = (U F + η s U x f A )e ρ(s ) ds. (14) A any period along he opimal rajecory, he social marginal cos of deforesaion mus be equal o he discouned sum from up o of he ow of he marginal ameniy value of preserving he fores plus he marginal social value of he hreshold consrain, minus he marginal uiliy gain from an increase in agriculural land, U x f A. Reducing he sock of fores by one uni provides a direc marginal decrease in uiliy, U F, and an indirec marginal loss since we are approaching he hreshold by one more uni, which is capured by η. We denoe by ψ(f, h ) U F + η U x f A he ne marginal gain of preserving he fores. Proposiion 1 Characerizaion of he opimal soluion: 1. Inerior soluion: a each ime, an opimal deforesaion pah is characerized by he following equivalen equaions: φ(f, h ) = ψ(f s, h s )e ρ(s ) ds (15) ρ = φ(f, h ) φ(f, h ) + ψ(f, h ) φ(f, h ) 7 (16)
8 2. If he economy converges oward a seadysae, i mus be characerized by: ρ = 1 ( ) UF + η f A. (17) f h U x Proof: Equaion (15) resuls from combining (8) and (14), and (16) is obained by diereniaing (15) wih respec o ime. Equaion (17) is derived by seing φ equal o zero in (16). η corresponds o he value of η a seady sae. In our economy, no deforesaion occurs a he seadysae, hence he sock of fores remains consan (if posiive). Condiion (17) can be inerpreed as a modied Clark and Munroe Golden Rule (Swallow, 199) ha equalizes he social discoun rae o he social marginal rae of reurn of undeforesed land. Deforesaion ends when he marginal gain of deforesaion muliplied by he social discoun rae equals he social ne marginal gain of preserving he fores. Denoing by A he opimal saionary sock of agriculural land, we observe wo cases: if A = Ā, hen η, he hreshold consrain is binding, which impedes more deforesaion; whereas if A < Ā, hen η =, and he hreshold plays no role in he ending of deforesaion. Given ha Ā < L, some fores will remain a seady sae, even for negligible ameniy values. 4 The decenralized economy Now, consider ha here is no inernaional social planner who balances he benes and he damages from deforesaion. Insead, we represen a simplied world economy where Souh is he producer of a single expored good and he landowner of ropical foress, and where Norh consumes he good and suers from he exernaliy of deforesaion. The price of he expored good is normalized o one. Since he environmenal exernaliy is no considered by Souh, Norh mus oer o Souh a condiional ransfer o avoid ha mos of he fores is cu down. Denoe by S(F, h ) he funcional class of ransfers ha depends on boh he remaining sock of fores F and he insananeous deforesaion rae h. Inuiively, an ecien ransfer scheme should be designed such ha S F and S h. 4.1 Deforesing Souh We assume ha fores is an open access resource in Souh, hence here is no marke for land. Clearing he land is sucien o obain he propery righs. Assuming ha deforesaion is irreversible implies ha Souh will ake ino accoun he shadow cos of deforesaion. 8
9 However, only an inernaional ransfer from Norh can compel Souh o consider he social opporuniy cos of no preserving he fores. The program of Souh is: max {h, } [f(a, h ) + S(F, h )]e rsds d (18) subjec o (1), (2) and o h. The exended Hamilonian of his program is: where λ S H S = f(a, h ) + S(F, h ) + λ S h + µ S h (19) is he cosae variable associaed wih he accumulaion of he sock of agriculural lands, and where µ S is he Lagrangian muliplier associaed wih he nonnegaiviy consrain on he deforesaion rae. The saic and dynamic rsorder condiions, he ransversaliy condiion, and he complemenary slackness condiion are, respecively: f h + S h = λ S µ S (2) λ S = r λ S + S F f A (21) lim e rsds λ S A = (22) Using (21) and (22), we can express λ S λ S = As long as h >, we have µ S µ S h =, µ S, h (23) respecs he following arbirage condiion: as follows: (S F f A )e s rudu ds (24) =, hence given (2) and (21), he inerior soluion r = φ S (F, h ) φ S (F, h ) + ψs (F, h ) φ S (F, h ) (25) where φ S (F, h ) f h + S h is he ne marginal pro from deforesing and ψ S (F, h ) S F f A is he ne marginal pro of preserving one uni of fores. Comparing (25) wih (16) shows ha he insananeous pro ows are now discouned a he ineres rae r, insead of ρ, and ha he gains or losses from deforesing are no evaluaed in erms of uiliy. 4.2 Environmenallyfriendly Norh Norh is he only consumer of he good whose producion generaes deforesaion and is willing o preserve ropical fores due o is ameniy value. The program of he donor is: max {x, } U(x, F )e ρ d (26) 9
10 subjec o Ḃ = r B x S(F, h ), (27) where B denoes Norhern wealh, which can be used for consumpion or for invesmen a he ineres rae r. I can be easily shown ha solving he Norhern consumer's program leads o he sandard KeynesRamsey condiion: ρ U x U x = r (28) 4.3 Characerizaion of he decenralized equilibrium A paricular equilibrium, associaed wih a paricular ransfer funcion S(F, h ), is a vecor of rajecories {h, A ; r } such ha: i) Souhern producer maximizes is ineremporal pro funcion; ii) Norhern consumer maximizes is uiliy; iii) he marke of he nal good is perfecly compeiive and cleared:, x = f(a, h ); and iv) Souh receives a ransfer S(F, h ) from Norh. From he previous analysis of individual behaviors, we obain Proposiion 2 For a given class of ransfer funcions S(F, h ), he decenralized equilibrium is characerized as follows: 1. During any sricly posiive deforesaion regime, he wo following equivalen equaion mus hold a he equilibrium: φ S (F, h ) = 1 U x, ρ U x = φ S (F, h ) U x φ S (F, h ) + ψs (F, h ) φ S (F, h ) ψ S (F s, h s )U x,s e ρ(s ) ds (29) 2. If he economy converges oward a seadysae equilibrium, i mus be such ha: Proof: (3) ρ = ψs (F, h) φ S (F, h) = S F f A S h + f h (31) Inegraion of (28) from up o s yields: e s rudu = (U x,s /U x, ) e ρ(s ). Combining his las resul wih (2) and (24) implies (29). (3) is a direc implicaion of (25) and (28). 5 Opimal ransfer analysis 5.1 Firsbes opimum implemenaion rule The opimal ransfer funcion is such ha he characerizing condiions of he opimum in Proposiion 1 coincide wih he characerizing condiions of he decenralized equilibrium 1
11 in Proposiion 2. We obain Proposiion 3 During any sricly posiive deforesaion regime a he decenralized equilibrium, he ransfer funcion S(F, h ) mus saisfy he wo following equivalen condiions in order o resore he rsbes opimaliy: S h U x = (S F U x U F η s )e ρ(s ) ds U F + η U x = S F + Ṡh S h ( ρ U x U x ) (32) The condiion saes ha when he hreshold F is no reached, he marginal rae of subsiuion beween consumpion and fores preservaion is equal o he marginal ransfer per uni of fores, plus he change of he marginal ransfer per uni of deforesaion, minus he marginal ransfer per uni of deforesaion muliplied by he rae of ineres. A priori, here exiss an inniy of ransfer funcions among he funcional class S(F, h ) ha saisfy he condiion (32). In he nex subsecion, we will resric he analysis o a se of sandard poliical ools, namely axes and subsidies. 5.2 Example of ransfers Subsidy on he remaining sock of fores Consider ha he ransfer akes he form of a uniary subsidy on he remaining sock of fores, i.e. S(F, h ) = σ F, wih σ for any. From (32), he opimal subsidy rae mus be equal o: σ = U F + η U x (33) When he hreshold F has no been reached (η = ), he opimal subsidy rae mus be equal o he marginal rae of subsiuion beween consumpion and preservaion of he fores. Once he hreshold is reached, he opimal subsidy rae is larger since η. Is dynamic properies canno be characerized wihou a deeper invesigaion on he properies of he uiliy funcion U(x, F ). An analyic example will be examined laer. If he damage due o deforesaion was only capured by he hreshold consrain, he opimal subsidy rae mus be equal o zero as long as he hreshold of fores is no reached and o he marginal social cos of he consrain in moneary erms (i.e. divided by he marginal uiliy) hereafer. Norh would hen perceive a subsidy only once his fores sock has been driven down o he allowed minimal level, o sop furher deforesaion. 11
12 5.2.2 Tax on he deforesaion ow Consider ha he ransfer akes he form of a ax on he deforesaion ow, hence S(F, h ) = τ h, wih τ for any. From (32), we have τ = 1 (U F + η s )e ρ(s ) ds (34) U x A each period, he opimal ax rae mus be equal o he discouned sum of he insananeous ow of social marginal gain from preserving he fores, divided by he marginal uiliy of consumpion o obain he expression in moneary erms (given ha he consumpion good is he numeraire). Since η = for any < T, where T denoes he dae a which he sock of fores reaches he minimal hreshold, he expression of τ rewrien as: τ = [ e ρ T U x U F e ρs ds + ] T (U F + η s )e ρs ds, [, T ) e ρ U x (U F + η s )e ρs ds, [T, + ) can be If he deforesaion exernaliy was capured only by he minimal hreshold, he opimal ax would be sricly posiive even when < T. This is in conras wih he subsidy on he sock of fores in he case where fores has no ameniy value. Logdiereniaing (34) gives he growh rae of he opimal ax on deforesaion a each ime : τ = ρ U x U F + η τ U x (U F + η s )e ρ(s ) (36) ds The dynamics of he opimal ax resuls from he dierence of wo componens. The rs one, ρ U x /U x, is simply he ineres rae, i.e. he rae a which fuure gains or losses are discouned, assumed here o be posiive. 4 The second erm is he raio of he insananeous social marginal uiliy gain of preserving he fores over he discouned sum of he same marginal gain, which is also posiive. We hen have wo opposie eecs ha drive he dynamics of he ax, which implies ha he ax can eiher rise or fall over ime Policymix Since Souhern paricipaion ino he ransfer program is volunary, he ax scheme is unlikely o be acceped. Hence, he paricipaion consrain requires ha S(F, h ). 4 Noe ha, since social preferences exhibi a conservaion moive for ropical fores, his discoun rae can be expanded as r = ρ+ɛ(x )g x,+h U xf /U x, where ɛ(x ) is he inverse of he elasiciy of ineremporal subsiuion of consumpion and g x, is he insananeous growh rae of consumpion. As compared wih he sandard decomposiion of he discoun rae, we mus ake ino accoun he ameniy eec capured by h U xf /U x, whose sign is no specied a priori. An exensive discussion on his poin can be found in Schuber (26). (35) 12
13 To respec his condiion, he scheme needs o combine a subsidy for fores preservaion a rae σ and a ax on he deforesaion process a rae τ : S(F, h ) = σ F τ h. If one of hese wo policy insrumens is se equal o is rsbes opimal level dened above, hen obviously, he second one mus be equal o zero. Since he model considers a single source of exernaliy, a unique policy insrumen is required o resore opimaliy. However, he enforcemen of he rsbes soluion hrough one insrumen may no be achievable due o budgeary, socioeconomic or poliical addiional consrains, hence he use of boh insrumens may be required. To illusrae his, consider ha Norh has no se he subsidy rae a is opimal level, hence σ < σ,. In his paricular case, Norh could also implemen a secondbes opimal ax τ sb τ sb o resore he opimum, such as = 1 U x (σs σ s )e ρ(s ) ds > (37) U x Since he donor was no able o oer he opimal subsidy rae, he incenive for preserving fores is no sucienly high, hence a ax is required o limi deforesaion. However, we need o have σ F τ sb h for all o ensure Souhern paricipaion. Conversely, consider ha he ax rae τ eecively levied by Norh is such ha τ < τ,. From (32), he secondbes subsidy rae σ sb, which is necessary o resore he opimum, is given by: U x σ sb s e ρ(s ) ds = U x (τ τ ) σ sb = ( ρ U x U x ) (τ τ ) ( τ τ ) > (38) Since Norh has no se he ax a is opimal level, Souh is emped o defores more, hence a subsidy on he fores sock is necessary o curb deforesaion. However, we need o have σ sb F τ h o allow Souh o paricipae. 6 Illusraion 6.1 Analyical specicaions and idenicaion of he possible cases In order o furher develop he analysis, we adop he following specicaions. Firs, assume a separable insananeous uiliy funcion: U(x, F ) = x1 ɛ 1 ɛ + γf, wih ɛ >, γ > (39) where 1/ɛ is he consan ineremporal elasiciy of subsiuion in consumpion. posiive o ensure ha he higher he sock of preserved ropical fores, he higher he uiliy. Second, consider a producion funcion wih decreasing reurns o scale, where wo γ is 13
14 ypes of land are perfec subsiues: x = f(a, h ) = (A + νh ) β, wih < β < 1, ν > 1, (4) where ν is he feriliy boos of he newly deforesed land, h, compared o he old agriculural land, A. We rs look a he opimal saionary regime. There are wo possible saionary socks of agriculural lands: he "naural" seadysae level A owards which he economy would end in he absence of he maximal hreshold consrain on A and he imposed seadysae level Ā. In boh cases, he deforesaion rae h equals zero and he resuling consumpion level simply becomes x = x = (A ) β or x = x = Āβ, depending on he saionary amoun of agriculural land. Assume ha level Ā is high enough so ha A < Ā L. In his case, he economy converges owards a seadysae which is characerized by (17) wih η =, saring from A < A. Using he specied analyical forms (39) and (4), U x f h = νu x f A = νβx 1 ɛ 1/β so ha (17) implies: [ β(ρν + 1) A = γ ] 1 1 β(1 ɛ) (41) where [1 β(1 ɛ)] > for any < β < 1 and ɛ >. Conversely, assume ha Ā is low enough so ha he hreshold consrain becomes binding a some dae T >. Hence, from (12), we have η = for any < T and η for any T. Equaion (17) implies η = β(ρν + 1)Āβ(1 ɛ) 1 γ for any T. Replacing γ by β(ρν + 1)(A ) β(1 ɛ) 1 in his las expression, using (41), we obain: {, [, T ) η = β(ρν + 1)Ψ, [T, + ) (42) where Ψ is dened as: Ψ = Āβ(1 ɛ) 1 (A ) β(1 ɛ) 1. (43) wih β(1 ɛ) 1 < for any β (, 1) and ɛ >. The muliplier η is nonnegaive if and only if Ψ, ha is, if Ā A. Consequenly, we have wo cases: eiher Ā > A and he opimal saionary regime is unconsrained, or Ā A and he saionary regime is driven by he hreshold consrain. We invesigae hese wo cases in he following subsecions. 6.2 The unconsrained case: A < Ā Opimal rajecories If he hreshold consrain is no binding, η = for any, and he opimal rajecories are given by he following proposiion: 14
15 Proposiion 4 If A < Ā, he opimal rajecories are (he upperscrip u refers o opimaliy in he unconsrained case), for any : A u = A (A A )e ν = L F u (44) ( A h u ) A = e ν (45) ν x u = x = (A ) β. (46) Proof: See he proof in appendix. Given ha he uiliy funcion is addiively separable in x and F, and is linear in F, he economy insananeously jumps from he beginning of he planning horizon o a saionary consumpion regime. However, he opimal deforesaion rae decreases exponenially over ime from is iniial level h = (A A )/ν, and ends asympoically o zero. The sock of agriculural lands coninuously increases over ime, from A a he iniial period o is asympoic saionary value A. Observe ha a sricly posiive sock of fores F will remain in he seady sae, where F = L A, due o he ameniy value of fores. In he absence of such a conservaion moive, he opimal deforesaion pah could exhaus enirely he fores sock in nie ime 5. These opimal rajecories are depiced in Figure 1. Table 1 shows he sign of he parial derivaive of he variables of ineres wih respec o he main parameers. We nd noably ha he opimal saionary levels of agriculural land and consumpion are increasing in he pure rae of ime preference ρ, as well as in he new deforesed land produciviy boos ν, and are decreasing in he marginal ameniy value γ. Table 1: Comparaive dynamics analysis The unconsrained case X X/ ρ X/ γ X/ ν A u + depends on A, β, ɛ, ρ, ν h u + depends on A, β, ɛ, ρ, ν x u + + A + + F + 5 Proof available upon reques. 15
16 h h u h * * A A = F F A, L L u F * F * A F u A A Figure 1: Opimal rajecories of h, A and F The unconsrained case 16
17 6.2.2 Opimal policies In he unconsrained case, consider rs a pure subsidy on he remaining sock of fores: S(F, h ) = σ F. From (33), he opimal subsidy rae is σ u = γ(a ) ɛβ,. Since he marginal rae of subsiuion beween consumpion and preservaion of he fores is consan hrough ime in our specied framework, he opimal rae of subsidy mus also be consan. Obviously, i is increasing in he marginal ameniy value, γ. I is also increasing in ρ and ν, since a rise in hese wo parameers resuls in a larger saionary level of agriculural land. τ u Second, consider a pure axaion policy: S(F, h ) = τ h. From (34), i implies: = γ(a ) ɛβ /ρ,. The opimal deforesaion ax rae corresponds o he discouned sum from up o of he ows of he opimal marginal rae of subsiuion (MRS) beween x and F. Given ha he opimal MRS is consan over ime in our specied example, he uniary ax simplies o MRS/ρ. The opimal ax rae is consan hrough ime, increasing in γ and ν and decreasing in ρ since shor run consumpion, and deforesaion, are more valuable when ρ is high. 6 σ u Imagine ha Norh is no willing o oer more ha half of he opimal subsidy: we have = σ u /2. To resore he opimum, he ransfer scheme mus combine he subsidy wih a secondbes ax, which is se as follows: τ sb he scheme mus respec he following condiion: = τ u /2. To ensure Souhern paricipaion, L A (A A )e /ν [1/(νρ) 1]. (47) If ρν 1, he inequaliy is saised for all, whereas, if ρν < 1, he condiion is saised if ρν is high, and if he saionary sock of fores is large compared o he rise in agriculural land from is iniial level, given ha e /ν < The consrained case: Ā A Opimal rajecories Consider now ha he hreshold consrain becomes binding a some dae T. In his case, he Lagrange muliplier associaed wih he hreshold consrain is given by (42). 6 A simple calculus leads o: τ u ρ = β ɛβ 1 β(1 ɛ) ρ 2 ( ρν + 1 which is negaive for any ɛ and β 1. γ ) β 1 1 β(1 ɛ) [ (β 1)(ρν + 1) ɛβ 1 β(1 ɛ) ], 17
18 Proposiion 5 If Ā A hen, he opimal rajecories are (he upperscrip c refers o opimaliy in he consrained case), for any : [ A + 1 ] 1 A c ν (zc β(1 ɛ) 1 s) e s ν ds e ν, [, T ) = Ā, [T, + ) (48) F c = L A c (49) h c = 1 [ ] (z c 1 ) β(1 ɛ) 1 A c (5) ν β x c = (z c ) β(1 ɛ) 1, (51) where z c is dened by: ] Ā β(1 ɛ) 1 ρν+1 + Ψ [e ( z c ν )(T ) 1, [, T ) = Ā β(1 ɛ) 1, [T, + ) (52) Proof: See he proof in appendix. Le us analyze he dynamic properies of hese opimal rajecories. Using (52), he rajecory of z c is increasing and convex for any [, T ) and consan for any T. I is depiced by he Norh Eas quadran of Figure 2. By consrucion, x c is obained as a decreasing and convex ransformaion of z c of Figure 2. as shown in he Souh Eas quadran The opimal consumpion pah is declining hrough ime as long as he deforesaion process goes on and i reaches he imposed sabilizaion level x = Āβ a ime T. Consumpion decreases because producion is resriced, due o he consrain on agriculural land. The rajecory of A c mus be increasing since A c = h c is nonnegaive by assumpion. Using (5) and (51), Ä c = ḣc = (1/ν)[ẋ c (x c ) 1/β 1 /β A c ] which is clearly nonposiive since ẋ c and A c. Finally, diereniaing again his las expression wih respec o ime leads o ḧc since ẍ c and Äc. We obain an increasing and concave opimal rajecory of agriculural land accumulaion and a decreasing and convex opimal deforesaion pah for any [, T ) as represened in Figure 3. The opimal dae T a which he sock of deforesed land reaches he imposed maximal hreshold Ā is endogenously deermined by he coninuiy condiion on he opimal rajecory A c. I is hus soluion of he following equaion: 1 T ν 1 (zs) c β(1 ɛ) 1 e s ν ds = Āe T ν A. (53) 18
19 A z β ( 1 ε ) 1 c z x = z β β ( 1 ε ) 1 c z x β A T c x 45 c x x Figure 2: Opimal rajecory of x The consrained case Performing a comparaive dynamics analysis on he opimal rajecories amouns o performing a comparaive saics analysis on T. We underake such an exercise by sudying he impac of he pure rae of ime preference and of he marginal ameniy value on T. Parially diereniaing (53) wih respec o ρ leads o: [ 1 T ν ρ (zc T ) 1 β(1 ɛ) 1 e T ν + T z c s ρ ( ) ] 1 (z c 1 β(1 ɛ) 1 β(1 ɛ) 1 s) 1 e s ν ds = T Āe T ν ρ ν Given z c T = Āβ(1 ɛ) 1, his expression simply reduces o z c / ρ =, for any [, T ). From (41), (43) and (52), we obain afer simplicaions: z c [( ) ] ρν + 1 T γν [ ρ = Ψ + (T ) = [,T ) ν ρ β(ρν + 1) 2 1 e ( ] ρν+1 ν )(T ) (55) For any [, T ), he RHS of his equaliy is negaive. Since Ψ is posiive, a necessary condiion for geing a negaive LHS is T/ ρ. (54) Inuiively, he opimal dae a which he sock of fores reaches is hreshold level occurs earlier when ρ increases. This resul implies ha he iniial deforesaion level h c mus increase, since he area below he rajecory of h c beween and T is consan: T hc d = Ā A. Then, an increase in ρ resuls in faser deforesaion: F c is reduced and A c is augmened. The eec of an increase in ρ on he opimal rajecories of he deforesaion rae and he sock of agriculural land is represened in Figure 4 by a shif from he solid line o he dashed line. 19
20 h h c h A A T A, L L c F F F A c A A T Figure 3: Opimal rajecories of h, A and F The consrained case 2
Economics Honors Exam 2008 Solutions Question 5
Economics Honors Exam 2008 Soluions Quesion 5 (a) (2 poins) Oupu can be decomposed as Y = C + I + G. And we can solve for i by subsiuing in equaions given in he quesion, Y = C + I + G = c 0 + c Y D + I
More informationGraduate Macro Theory II: Notes on Neoclassical Growth Model
Graduae Macro Theory II: Noes on Neoclassical Growh Model Eric Sims Universiy of Nore Dame Spring 2011 1 Basic Neoclassical Growh Model The economy is populaed by a large number of infiniely lived agens.
More informationChapter 1.6 Financial Management
Chaper 1.6 Financial Managemen Par I: Objecive ype quesions and answers 1. Simple pay back period is equal o: a) Raio of Firs cos/ne yearly savings b) Raio of Annual gross cash flow/capial cos n c) = (1
More informationOptimal Investment and Consumption Decision of Family with Life Insurance
Opimal Invesmen and Consumpion Decision of Family wih Life Insurance Minsuk Kwak 1 2 Yong Hyun Shin 3 U Jin Choi 4 6h World Congress of he Bachelier Finance Sociey Torono, Canada June 25, 2010 1 Speaker
More informationPrice elasticity of demand for crude oil: estimates for 23 countries
Price elasiciy of demand for crude oil: esimaes for 23 counries John C.B. Cooper Absrac This paper uses a muliple regression model derived from an adapaion of Nerlove s parial adjusmen model o esimae boh
More informationEfficient Risk Sharing with Limited Commitment and Hidden Storage
Efficien Risk Sharing wih Limied Commimen and Hidden Sorage Árpád Ábrahám and Sarola Laczó March 30, 2012 Absrac We exend he model of risk sharing wih limied commimen e.g. Kocherlakoa, 1996) by inroducing
More informationStochastic Optimal Control Problem for Life Insurance
Sochasic Opimal Conrol Problem for Life Insurance s. Basukh 1, D. Nyamsuren 2 1 Deparmen of Economics and Economerics, Insiue of Finance and Economics, Ulaanbaaar, Mongolia 2 School of Mahemaics, Mongolian
More informationPresent Value Methodology
Presen Value Mehodology Econ 422 Invesmen, Capial & Finance Universiy of Washingon Eric Zivo Las updaed: April 11, 2010 Presen Value Concep Wealh in Fisher Model: W = Y 0 + Y 1 /(1+r) The consumer/producer
More informationThe Transport Equation
The Transpor Equaion Consider a fluid, flowing wih velociy, V, in a hin sraigh ube whose cross secion will be denoed by A. Suppose he fluid conains a conaminan whose concenraion a posiion a ime will be
More informationNiche Market or Mass Market?
Niche Marke or Mass Marke? Maxim Ivanov y McMaser Universiy July 2009 Absrac The de niion of a niche or a mass marke is based on he ranking of wo variables: he monopoly price and he produc mean value.
More informationA OneSector Neoclassical Growth Model with Endogenous Retirement. By Kiminori Matsuyama. Final Manuscript. Abstract
A OneSecor Neoclassical Growh Model wih Endogenous Reiremen By Kiminori Masuyama Final Manuscrip Absrac This paper exends Diamond s OG model by allowing he agens o make he reiremen decision. Earning a
More informationPROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE
Profi Tes Modelling in Life Assurance Using Spreadshees PROFIT TEST MODELLING IN LIFE ASSURANCE USING SPREADSHEETS PART ONE Erik Alm Peer Millingon 2004 Profi Tes Modelling in Life Assurance Using Spreadshees
More informationBALANCE OF PAYMENTS. First quarter 2008. Balance of payments
BALANCE OF PAYMENTS DATE: 20080530 PUBLISHER: Balance of Paymens and Financial Markes (BFM) Lena Finn + 46 8 506 944 09, lena.finn@scb.se Camilla Bergeling +46 8 506 942 06, camilla.bergeling@scb.se
More informationOptimal Stock Selling/Buying Strategy with reference to the Ultimate Average
Opimal Sock Selling/Buying Sraegy wih reference o he Ulimae Average Min Dai Dep of Mah, Naional Universiy of Singapore, Singapore Yifei Zhong Dep of Mah, Naional Universiy of Singapore, Singapore July
More informationNetwork Effects, Pricing Strategies, and Optimal Upgrade Time in Software Provision.
Nework Effecs, Pricing Sraegies, and Opimal Upgrade Time in Sofware Provision. YiNung Yang* Deparmen of Economics Uah Sae Universiy Logan, UT 84322353 April 3, 995 (curren version Feb, 996) JEL codes:
More informationGoverning the Resource: ScarcityInduced Institutional Change *
Governing he Resource: carciyinduced Insiuional Change May 8 James Roumasse Nori arui Absrac We provide a dynamic model of naural resource managemen where he opimal insiuional srucure ha governs resource
More informationDYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS
DYNAMIC MODELS FOR VALUATION OF WRONGFUL DEATH PAYMENTS Hong Mao, Shanghai Second Polyechnic Universiy Krzyszof M. Osaszewski, Illinois Sae Universiy Youyu Zhang, Fudan Universiy ABSTRACT Liigaion, exper
More informationWorking Paper Monetary aggregates, financial intermediate and the business cycle
econsor www.econsor.eu Der OpenAccessPublikaionsserver der ZBW LeibnizInformaionszenrum Wirschaf The Open Access Publicaion Server of he ZBW Leibniz Informaion Cenre for Economics Hong, Hao Working
More informationTHE FIRM'S INVESTMENT DECISION UNDER CERTAINTY: CAPITAL BUDGETING AND RANKING OF NEW INVESTMENT PROJECTS
VII. THE FIRM'S INVESTMENT DECISION UNDER CERTAINTY: CAPITAL BUDGETING AND RANKING OF NEW INVESTMENT PROJECTS The mos imporan decisions for a firm's managemen are is invesmen decisions. While i is surely
More informationChapter 7. Response of FirstOrder RL and RC Circuits
Chaper 7. esponse of FirsOrder L and C Circuis 7.1. The Naural esponse of an L Circui 7.2. The Naural esponse of an C Circui 7.3. The ep esponse of L and C Circuis 7.4. A General oluion for ep and Naural
More informationDuration and Convexity ( ) 20 = Bond B has a maturity of 5 years and also has a required rate of return of 10%. Its price is $613.
Graduae School of Business Adminisraion Universiy of Virginia UVAF38 Duraion and Convexiy he price of a bond is a funcion of he promised paymens and he marke required rae of reurn. Since he promised
More informationOption PutCall Parity Relations When the Underlying Security Pays Dividends
Inernaional Journal of Business and conomics, 26, Vol. 5, No. 3, 22523 Opion Puall Pariy Relaions When he Underlying Securiy Pays Dividends Weiyu Guo Deparmen of Finance, Universiy of Nebraska Omaha,
More informationMorningstar Investor Return
Morningsar Invesor Reurn Morningsar Mehodology Paper Augus 31, 2010 2010 Morningsar, Inc. All righs reserved. The informaion in his documen is he propery of Morningsar, Inc. Reproducion or ranscripion
More informationUNDERSTANDING THE DEATH BENEFIT SWITCH OPTION IN UNIVERSAL LIFE POLICIES. Nadine Gatzert
UNDERSTANDING THE DEATH BENEFIT SWITCH OPTION IN UNIVERSAL LIFE POLICIES Nadine Gazer Conac (has changed since iniial submission): Chair for Insurance Managemen Universiy of ErlangenNuremberg Lange Gasse
More informationAppendix D Flexibility Factor/Margin of Choice Desktop Research
Appendix D Flexibiliy Facor/Margin of Choice Deskop Research Cheshire Eas Council Cheshire Eas Employmen Land Review Conens D1 Flexibiliy Facor/Margin of Choice Deskop Research 2 Final Ocober 2012 \\GLOBAL.ARUP.COM\EUROPE\MANCHESTER\JOBS\200000\22348900\4
More informationII.1. Debt reduction and fiscal multipliers. dbt da dpbal da dg. bal
Quarerly Repor on he Euro Area 3/202 II.. Deb reducion and fiscal mulipliers The deerioraion of public finances in he firs years of he crisis has led mos Member Saes o adop sizeable consolidaion packages.
More informationMACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR
MACROECONOMIC FORECASTS AT THE MOF A LOOK INTO THE REAR VIEW MIRROR The firs experimenal publicaion, which summarised pas and expeced fuure developmen of basic economic indicaors, was published by he Minisry
More informationWhy Did the Demand for Cash Decrease Recently in Korea?
Why Did he Demand for Cash Decrease Recenly in Korea? Byoung Hark Yoo Bank of Korea 26. 5 Absrac We explores why cash demand have decreased recenly in Korea. The raio of cash o consumpion fell o 4.7% in
More informationThe Grantor Retained Annuity Trust (GRAT)
WEALTH ADVISORY Esae Planning Sraegies for closelyheld, family businesses The Granor Reained Annuiy Trus (GRAT) An efficien wealh ransfer sraegy, paricularly in a low ineres rae environmen Family business
More informationInductance and Transient Circuits
Chaper H Inducance and Transien Circuis Blinn College  Physics 2426  Terry Honan As a consequence of Faraday's law a changing curren hrough one coil induces an EMF in anoher coil; his is known as muual
More informationTable of contents Chapter 1 Interest rates and factors Chapter 2 Level annuities Chapter 3 Varying annuities
Table of conens Chaper 1 Ineres raes and facors 1 1.1 Ineres 2 1.2 Simple ineres 4 1.3 Compound ineres 6 1.4 Accumulaed value 10 1.5 Presen value 11 1.6 Rae of discoun 13 1.7 Consan force of ineres 17
More informationMathematics in Pharmacokinetics What and Why (A second attempt to make it clearer)
Mahemaics in Pharmacokineics Wha and Why (A second aemp o make i clearer) We have used equaions for concenraion () as a funcion of ime (). We will coninue o use hese equaions since he plasma concenraions
More informationLecture Note on the Real Exchange Rate
Lecure Noe on he Real Exchange Rae Barry W. Ickes Fall 2004 0.1 Inroducion The real exchange rae is he criical variable (along wih he rae of ineres) in deermining he capial accoun. As we shall see, his
More informationAnalysis of Pricing and Efficiency Control Strategy between Internet Retailer and Conventional Retailer
Recen Advances in Business Managemen and Markeing Analysis of Pricing and Efficiency Conrol Sraegy beween Inerne Reailer and Convenional Reailer HYUG RAE CHO 1, SUG MOO BAE and JOG HU PARK 3 Deparmen of
More informationThe Real Business Cycle paradigm. The RBC model emphasizes supply (technology) disturbances as the main source of
Prof. Harris Dellas Advanced Macroeconomics Winer 2001/01 The Real Business Cycle paradigm The RBC model emphasizes supply (echnology) disurbances as he main source of macroeconomic flucuaions in a world
More informationDebt Relief and Fiscal Sustainability for HIPCs *
Deb Relief and Fiscal Susainabiliy for HIPCs * Craig Burnside and Domenico Fanizza December 24 Absrac The enhanced HIPC iniiaive is disinguished from previous deb relief programs by is condiionaliy ha
More informationTime Consistency in Portfolio Management
1 Time Consisency in Porfolio Managemen Traian A Pirvu Deparmen of Mahemaics and Saisics McMaser Universiy Torono, June 2010 The alk is based on join work wih Ivar Ekeland Time Consisency in Porfolio Managemen
More informationMonetary and Fiscal Policy Interactions with Debt Dynamics
Moneary and Fiscal Policy Ineracions wih Deb Dynamics Sefano Gnocchi and Luisa Lamberini Preliminary and Incomplee November, 22 Absrac We analyze he ineracion beween commied moneary and discreionary fiscal
More informationRandom Walk in 1D. 3 possible paths x vs n. 5 For our random walk, we assume the probabilities p,q do not depend on time (n)  stationary
Random Walk in D Random walks appear in many cones: diffusion is a random walk process undersanding buffering, waiing imes, queuing more generally he heory of sochasic processes gambling choosing he bes
More informationWorking Paper Social security systems, human capital, and growth in a small open economy
econsor www.econsor.eu Der OpenAccessPublikaionsserver der ZBW LeibnizInformaionszenrum Wirschaf The Open Access Publicaion Server of he ZBW Leibniz Informaion Cenre for Economics Kaganovich, Michael;
More informationChapter 6: Business Valuation (Income Approach)
Chaper 6: Business Valuaion (Income Approach) Cash flow deerminaion is one of he mos criical elemens o a business valuaion. Everyhing may be secondary. If cash flow is high, hen he value is high; if he
More informationApplied Intertemporal Optimization
. Applied Ineremporal Opimizaion Klaus Wälde Universiy of Mainz CESifo, Universiy of Brisol, UCL Louvain la Neuve www.waelde.com These lecure noes can freely be downloaded from www.waelde.com/aio. A prin
More informationPremium Income of Indian Life Insurance Industry
Premium Income of Indian Life Insurance Indusry A Toal Facor Produciviy Approach Ram Praap Sinha* Subsequen o he passage of he Insurance Regulaory and Developmen Auhoriy (IRDA) Ac, 1999, he life insurance
More informationCOMPLEMENTARY RELATIONSHIPS BETWEEN EDUCATION AND INNOVATION
Discussion Paper No. 731 COMPLEMENTARY RELATIONSHIPS BETWEEN EDUCATION AND INNOVATION Kasuhiko Hori and Kasunori Yamada February 2009 The Insiue of Social and Economic Research Osaka Universiy 61 Mihogaoka,
More informationIndividual Health Insurance April 30, 2008 Pages 167170
Individual Healh Insurance April 30, 2008 Pages 167170 We have received feedback ha his secion of he e is confusing because some of he defined noaion is inconsisen wih comparable life insurance reserve
More informationTRADE, DEVELOPMENT AND CONVERGING GROWTH RATES Dynamic Gains From Trade Reconsidered *
TRAD, DVLOPMNT AND CONVRGING GROWTH RATS Dynamic Gains From Trade Reconsidered * Theo S. icher Deparmen of conomics Universiy of Washingon Seale, WA 98195 (206) 685 8082 e@u.washingon.edu ABSTRACT: Wihin
More informationINSTRUMENTS OF MONETARY POLICY*
Aricles INSTRUMENTS OF MONETARY POLICY* Bernardino Adão** Isabel Correia** Pedro Teles**. INTRODUCTION A classic quesion in moneary economics is wheher he ineres rae or he money supply is he beer insrumen
More informationChapter 10 Social Security 1
Chaper 0 Social Securiy 0. Inroducion A ypical social securiy sysem provides income during periods of unemploymen, illhealh or disabiliy, and financial suppor, in he form of pensions, o he reired. Alhough
More informationINTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES
INTEREST RATE FUTURES AND THEIR OPTIONS: SOME PRICING APPROACHES OPENGAMMA QUANTITATIVE RESEARCH Absrac. Exchangeraded ineres rae fuures and heir opions are described. The fuure opions include hose paying
More informationA Note on Using the Svensson procedure to estimate the risk free rate in corporate valuation
A Noe on Using he Svensson procedure o esimae he risk free rae in corporae valuaion By Sven Arnold, Alexander Lahmann and Bernhard Schwezler Ocober 2011 1. The risk free ineres rae in corporae valuaion
More informationcooking trajectory boiling water B (t) microwave 0 2 4 6 8 101214161820 time t (mins)
Alligaor egg wih calculus We have a large alligaor egg jus ou of he fridge (1 ) which we need o hea o 9. Now here are wo accepable mehods for heaing alligaor eggs, one is o immerse hem in boiling waer
More informationEfficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth
DISCSSION PAPER SERIES IZA DP No. 4629 Efficien Subsidizaion of uman Capial Accumulaion wih Overlapping eneraions and Endogenous rowh Wolfram. Richer Chrisoph Braun December 29 orschungsinsiu zur Zukunf
More informationWe consider a decentralized assembly system in which a buyer purchases components from several firsttier
MANAGEMENT SCIENCE Vol. 55, No. 4, April 2009, pp. 552 567 issn 00251909 eissn 15265501 09 5504 0552 informs doi 10.1287/mnsc.1080.0961 2009 INFORMS Dynamic Cos Reducion Through Process Improvemen in
More informationDOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR
Invesmen Managemen and Financial Innovaions, Volume 4, Issue 3, 7 33 DOES TRADING VOLUME INFLUENCE GARCH EFFECTS? SOME EVIDENCE FROM THE GREEK MARKET WITH SPECIAL REFERENCE TO BANKING SECTOR Ahanasios
More informationThe Effect of Public Expenditure Shocks on Macroeconomic Variables in a Real Business Cycle Model. Case Study: Iran
40 School of Docoral Sudies (European Union) Journal 2010 The Effec of Public Expendiure Shocks on Macroeconomic Variables in a Real Business Cycle Model. Case Sudy: Iran Khosrow Pyraee a, Gholam Reza
More information11/6/2013. Chapter 14: Dynamic ADAS. Introduction. Introduction. Keeping track of time. The model s elements
Inroducion Chaper 14: Dynamic DS dynamic model of aggregae and aggregae supply gives us more insigh ino how he economy works in he shor run. I is a simplified version of a DSGE model, used in cuingedge
More informationI. Basic Concepts (Ch. 14)
(Ch. 14) A. Real vs. Financial Asses (Ch 1.2) Real asses (buildings, machinery, ec.) appear on he asse side of he balance shee. Financial asses (bonds, socks) appear on boh sides of he balance shee. Creaing
More informationReal exchange rate variability in a twocountry business cycle model
Real exchange rae variabiliy in a wocounry business cycle model Håkon Trevoll, November 15, 211 Absrac Real exchange rae flucuaions have imporan implicaions for our undersanding of he sources and ransmission
More informationPerformance Center Overview. Performance Center Overview 1
Performance Cener Overview Performance Cener Overview 1 ODJFS Performance Cener ce Cener New Performance Cener Model Performance Cener Projec Meeings Performance Cener Execuive Meeings Performance Cener
More informationA Guide to Valuing Natural Resources Wealth
A Guide o Valuing Naural esources Wealh Policy and Economics Team Environmen Deparmen, World Bank For quesions: Giovanni ua, grua@worldbank.org Conens: Basic framework Subsoil asses Fores (imber asses)
More informationDETERMINISTIC INVENTORY MODEL FOR ITEMS WITH TIME VARYING DEMAND, WEIBULL DISTRIBUTION DETERIORATION AND SHORTAGES KUNSHAN WU
Yugoslav Journal of Operaions Research 2 (22), Number, 67 DEERMINISIC INVENORY MODEL FOR IEMS WIH IME VARYING DEMAND, WEIBULL DISRIBUION DEERIORAION AND SHORAGES KUNSHAN WU Deparmen of Bussines Adminisraion
More information17 Laplace transform. Solving linear ODE with piecewise continuous right hand sides
7 Laplace ransform. Solving linear ODE wih piecewise coninuous righ hand sides In his lecure I will show how o apply he Laplace ransform o he ODE Ly = f wih piecewise coninuous f. Definiion. A funcion
More informationLongevity 11 Lyon 79 September 2015
Longeviy 11 Lyon 79 Sepember 2015 RISK SHARING IN LIFE INSURANCE AND PENSIONS wihin and across generaions Ragnar Norberg ISFA Universié Lyon 1/London School of Economics Email: ragnar.norberg@univlyon1.fr
More informationSustainable growth with renewable and fossil fuels energy sources
Susainable growh wih renewable and fossil fuels energy sources Carlo Andrea Bollino and Silvia Micheli Deparmen of Economics, Finance and Saisics, Universiy of Perugia Via Pascoli 20, Perugia, aly Email:
More informationAP Calculus AB 2010 Scoring Guidelines
AP Calculus AB 1 Scoring Guidelines The College Board The College Board is a noforprofi membership associaion whose mission is o connec sudens o college success and opporuniy. Founded in 1, he College
More informationWorking Paper No. 482. Net Intergenerational Transfers from an Increase in Social Security Benefits
Working Paper No. 482 Ne Inergeneraional Transfers from an Increase in Social Securiy Benefis By Li Gan Texas A&M and NBER Guan Gong Shanghai Universiy of Finance and Economics Michael Hurd RAND Corporaion
More informationOptimal Monetary Policy When LumpSum Taxes Are Unavailable: A Reconsideration of the Outcomes Under Commitment and Discretion*
Opimal Moneary Policy When LumpSum Taxes Are Unavailable: A Reconsideraion of he Oucomes Under Commimen and Discreion* Marin Ellison Dep of Economics Universiy of Warwick Covenry CV4 7AL UK m.ellison@warwick.ac.uk
More informationLEASING VERSUSBUYING
LEASNG VERSUSBUYNG Conribued by James D. Blum and LeRoy D. Brooks Assisan Professors of Business Adminisraion Deparmen of Business Adminisraion Universiy of Delaware Newark, Delaware The auhors discuss
More information4. International Parity Conditions
4. Inernaional ariy ondiions 4.1 urchasing ower ariy he urchasing ower ariy ( heory is one of he early heories of exchange rae deerminaion. his heory is based on he concep ha he demand for a counry's currency
More informationThe option pricing framework
Chaper 2 The opion pricing framework The opion markes based on swap raes or he LIBOR have become he larges fixed income markes, and caps (floors) and swapions are he mos imporan derivaives wihin hese markes.
More informationRelationships between Stock Prices and Accounting Information: A Review of the Residual Income and Ohlson Models. Scott Pirie* and Malcolm Smith**
Relaionships beween Sock Prices and Accouning Informaion: A Review of he Residual Income and Ohlson Models Sco Pirie* and Malcolm Smih** * Inernaional Graduae School of Managemen, Universiy of Souh Ausralia
More informationDoes International Trade Stabilize Exchange Rate Volatility?
Does Inernaional Trade Sabilize Exchange Rae Volailiy? HuiKuan Tseng, KunMing Chen, and ChiaChing Lin * Absrac Since he early 980s, major indusrial counries have been suffering severe mulilaeral rade
More informationChapter 4: Exponential and Logarithmic Functions
Chaper 4: Eponenial and Logarihmic Funcions Secion 4.1 Eponenial Funcions... 15 Secion 4. Graphs of Eponenial Funcions... 3 Secion 4.3 Logarihmic Funcions... 4 Secion 4.4 Logarihmic Properies... 53 Secion
More informationEfficient Subsidization of Human Capital Accumulation with Overlapping Generations and Endogenous Growth. Wolfram F. Richter and Christoph Braun
Efficien Subsidizaion of uman Capial Accumulaion wih Overlapping eneraions and Endogenous rowh by Wolfram F. Richer and Chrisoph Braun T Dormund niversiy April 29 Firs Draf o be presened a he Conference
More informationStefano Bartolini* and Luigi Bonatti** ENDOGENOUS GROWTH AND NEGATIVE EXTERNALITIES **
Sefano Barolini* and Luigi Bonai** ENDOGENOUS GROWTH AND NEGATIVE EXTERNALITIES ** ABSTRACT: In his paper, he expansion of privae producion erodes he qualiy of commonly owned goods, hereby forcing individuals
More informationABSTRACT KEYWORDS. Term structure, duration, uncertain cash flow, variable rates of return JEL codes: C33, E43 1. INTRODUCTION
THE VALUATION AND HEDGING OF VARIABLE RATE SAVINGS ACCOUNTS BY FRANK DE JONG 1 AND JACCO WIELHOUWER ABSTRACT Variable rae savings accouns have wo main feaures. The ineres rae paid on he accoun is variable
More informationOptimal Life Insurance Purchase, Consumption and Investment
Opimal Life Insurance Purchase, Consumpion and Invesmen Jinchun Ye a, Sanley R. Pliska b, a Dep. of Mahemaics, Saisics and Compuer Science, Universiy of Illinois a Chicago, Chicago, IL 667, USA b Dep.
More informationFiscal consolidation in an open economy with sovereign premia
Fiscal consolidaion in an open economy wih sovereign premia Aposolis Philippopoulos y (Ahens Universiy of Economics and Business, and CESifo) Peros Varhaliis (Ahens Universiy of Economics and Business)
More informationOptimal Research and Development Expenditure: a General Equilibrium Approach
Opimal Research and Developmen Expendiure: a General Equilibrium Approach Galo Nuño y Banco de España May 7, 2 Absrac How much should be spen in research and developmen (R&D)? How should R&D vary over
More informationLECTURE: SOCIAL SECURITY HILARY HOYNES UC DAVIS EC230 OUTLINE OF LECTURE:
LECTURE: SOCIAL SECURITY HILARY HOYNES UC DAVIS EC230 OUTLINE OF LECTURE: 1. Inroducion and definiions 2. Insiuional Deails in Social Securiy 3. Social Securiy and Redisribuion 4. Jusificaion for Governmen
More informationMultiprocessor SystemsonChips
Par of: Muliprocessor SysemsonChips Edied by: Ahmed Amine Jerraya and Wayne Wolf Morgan Kaufmann Publishers, 2005 2 Modeling Shared Resources Conex swiching implies overhead. On a processing elemen,
More informationMarket Analysis and Models of Investment. Product Development and Whole Life Cycle Costing
The Universiy of Liverpool School of Archiecure and Building Engineering WINDS PROJECT COURSE SYNTHESIS SECTION 3 UNIT 11 Marke Analysis and Models of Invesmen. Produc Developmen and Whole Life Cycle Cosing
More informationUSE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES
USE OF EDUCATION TECHNOLOGY IN ENGLISH CLASSES Mehme Nuri GÖMLEKSİZ Absrac Using educaion echnology in classes helps eachers realize a beer and more effecive learning. In his sudy 150 English eachers were
More informationA RealTime Pricing Model for Electricity Consumption
A RealTime Pricing Model Elecriciy Consumpion Ranjan Pal Universiy o Souhern Calinia Email: rpal@usc.edu Absrac The Calinia elecric company, i.e., PG&E (Paciic Gas and Elecric Co.,), has recenly announced
More informationANALYSIS AND COMPARISONS OF SOME SOLUTION CONCEPTS FOR STOCHASTIC PROGRAMMING PROBLEMS
ANALYSIS AND COMPARISONS OF SOME SOLUTION CONCEPTS FOR STOCHASTIC PROGRAMMING PROBLEMS R. Caballero, E. Cerdá, M. M. Muñoz and L. Rey () Deparmen of Applied Economics (Mahemaics), Universiy of Málaga,
More informationOptimal Life Insurance Purchase and Consumption/Investment under Uncertain Lifetime
Opimal Life Insurance Purchase and Consumpion/Invesmen under Uncerain Lifeime Sanley R. Pliska a,, a Dep. of Finance, Universiy of Illinois a Chicago, Chicago, IL 667, USA Jinchun Ye b b Dep. of Mahemaics,
More informationMeasuring the Effects of Exchange Rate Changes on Investment. in Australian Manufacturing Industry
Measuring he Effecs of Exchange Rae Changes on Invesmen in Ausralian Manufacuring Indusry Robyn Swif Economics and Business Saisics Deparmen of Accouning, Finance and Economics Griffih Universiy Nahan
More informationResearch on Inventory Sharing and Pricing Strategy of Multichannel Retailer with Channel Preference in Internet Environment
Vol. 7, No. 6 (04), pp. 365374 hp://dx.doi.org/0.457/ijhi.04.7.6.3 Research on Invenory Sharing and Pricing Sraegy of Mulichannel Reailer wih Channel Preference in Inerne Environmen Hanzong Li College
More informationOptimal Time to Sell in Real Estate Portfolio Management
Opimal ime o Sell in Real Esae Porfolio Managemen Fabrice Barhélémy and JeanLuc Prigen hema, Universiy of CergyPonoise, CergyPonoise, France Emails: fabricebarhelemy@ucergyfr; jeanlucprigen@ucergyfr
More informationMTH6121 Introduction to Mathematical Finance Lesson 5
26 MTH6121 Inroducion o Mahemaical Finance Lesson 5 Conens 2.3 Brownian moion wih drif........................... 27 2.4 Geomeric Brownian moion........................... 28 2.5 Convergence of random
More informationHiring as Investment Behavior
Review of Economic Dynamics 3, 486522 Ž 2000. doi:10.1006redy.1999.0084, available online a hp:www.idealibrary.com on Hiring as Invesmen Behavior Eran Yashiv 1 The Eian Berglas School of Economics, Tel
More informationIndexing Executive Stock Options Relatively
Indexing Execuive Sock Opions Relaively JinChuan Duan and Jason Wei Joseph L. Roman School of Managemen Universiy of Torono 105 S. George Sree Torono, Onario Canada, M5S 3E6 jcduan@roman.uorono.ca wei@roman.uorono.ca
More informationThe Application of Multi Shifts and Break Windows in Employees Scheduling
The Applicaion of Muli Shifs and Brea Windows in Employees Scheduling Evy Herowai Indusrial Engineering Deparmen, Universiy of Surabaya, Indonesia Absrac. One mehod for increasing company s performance
More informationMarket Liquidity and the Impacts of the Computerized Trading System: Evidence from the Stock Exchange of Thailand
36 Invesmen Managemen and Financial Innovaions, 4/4 Marke Liquidiy and he Impacs of he Compuerized Trading Sysem: Evidence from he Sock Exchange of Thailand Sorasar Sukcharoensin 1, Pariyada Srisopisawa,
More informationCan Individual Investors Use Technical Trading Rules to Beat the Asian Markets?
Can Individual Invesors Use Technical Trading Rules o Bea he Asian Markes? INTRODUCTION In radiional ess of he weakform of he Efficien Markes Hypohesis, price reurn differences are found o be insufficien
More informationStrategic Optimization of a Transportation Distribution Network
Sraegic Opimizaion of a Transporaion Disribuion Nework K. John Sophabmixay, Sco J. Mason, Manuel D. Rossei Deparmen of Indusrial Engineering Universiy of Arkansas 4207 Bell Engineering Cener Fayeeville,
More informationKNOWLEDGE CREATION AND TECHNOLOGY DIFFUSION: A FRAMEWORK TO UNDERSTAND ECONOMIC GROWTH
Revisa KNOWLEDGE de Análisis CREATION Económico, AND Vol. TECHNOLOGY 20, Nº 2, pp. 4161 DIFUSSION:... (Diciembre 2005) 41 KNOWLEDGE CREATION AND TECHNOLOGY DIFFUSION: A FRAMEWORK TO UNDERSTAND ECONOMIC
More informationTo Sponsor or Not to Sponsor: Sponsored Search Auctions with Organic Links and Firm Dependent ClickThrough Rates
To Sponsor or No o Sponsor: Sponsored Search Aucions wih Organic Links and Firm Dependen ClickThrough Raes Michael Arnold, Eric Darmon and Thierry Penard June 5, 00 Draf: Preliminary and Incomplee Absrac
More informationSUBJECT SA0 OF THE INSTITUTE AND FACULTY OF ACTUARIES
SUBJECT SA0 OF THE INSTITUTE AND FACULTY OF ACTUARIES Man On Wong Essay on Welfare Effecs of Developing Reverse Morgage Marke in China Subjec SA0 Advisors Bing Zheng Chen James Orr Prepared a School of
More informationTerm Structure of Prices of Asian Options
Term Srucure of Prices of Asian Opions Jirô Akahori, Tsuomu Mikami, Kenji Yasuomi and Teruo Yokoa Dep. of Mahemaical Sciences, Risumeikan Universiy 111 Nojihigashi, Kusasu, Shiga 5258577, Japan Email:
More information