http://www.dspace.cam.ac.uk:80/handle/1810/276 Faculty of Economics Sun, 19 May 2013 04:52:47 GMT 2013-05-19T04:52:47Z http://www.dspace.cam.ac.uk:80/handle/1810/243979 Title: The Large Scale Roll-Out of Electric Vehicles Authors: Talaei, Alireza; Begg, Katherine; Jamasb, Tooraj Abstract: The UK government has set the ambitious targets of 20 and 50% reduction in greenhouse gas emissions by 2020 and 2050 respectively. The transport sector accounts for 21% of total CO2 emissions in the UK and can, therefore, be important for achieving the emissions reduction targets. Within the transport sector, electric vehicles (EV) are considered as one of the important mitigation options. However the effect of EVs on emissions and the electricity sector is subject to debate. We use scenario analysis to investigate the emission reduction potential of EVs and their interaction with electricity sector. We show that managing the charging patterns could reduce adverse effects of EVs on the electricity sector while the number of EVs remains the factor affecting the mitigation potential. Our findings indicate that in the UK, by 2030, EVs could result in up to 32% emissions reduction compared to advanced internal combustion engines. We also found that the need for new electricity generation and distribution capacity to meet the conventional electricity demand and demand from EVs could be reduced by up to 12% from 70.6 to 61.8 GW if the EVﾒs electricity demand is managed. Thu, 25 Oct 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243979 2012-10-25T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243978 Title: The Golden Hello and Political Transitions Authors: Toke, Aidt S.; Abornoz, Facundo; Gassebner, Martin Abstract: We analyze the influence of IMF and World Bank programs on political regime transitions. We develop an extended version of Acemoglu and Robinson's [American Economic Review 91, 2001] model of political transitions to show how the anticipation of new loans from international financial institutions can trigger political transitions which would not otherwise have taken place. We test this unexplored implication of the theory empirically. We find in a world sample from 1970 to 2002 that the anticipation of receiving new programs immediately after a political regime transition increases the probability of a transition from autocracy to democracy and reduces the probability of democratic survival. Sun, 07 Oct 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243978 2012-10-07T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243977 Title: Estimating market power in homogeneous product markets using a composed error model Authors: Orea, Luis; Steinbuks, Jevgenijs Abstract: This study contributes to the literature on estimating market power in homogenous product markets. We estimate a composed error model, where the stochastic part of the firmﾒs pricing equation is formed by two random variables Tue, 24 Apr 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243977 2012-04-24T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243976 Title: Necessity or Luxury Good? Household Energy Spending and Income in Britain 1991 - 2007 Authors: Meier, Helena; Jamasb, Tooraj; Orea, Luis Abstract: The residential demand for energy is growing steadily and the trend is expected to continue for the foreseeable future. Household spending on energy services tends to increase with income. We explore household total spending on energy and on electricity and gas separately. We use an extensive British household panel data with more than 77,000 observations for the 1991-2007 period to explore the determinants of energy spending. We analyse income as a main driver of spending on energy and draw Engel spending curves for these. The lack of household level price data in liberalized retail energy markets is addressed by a new modelling approach to reflect within and between regional differences in energy prices. Also, long run changes in energy spending of households are approximated by exploring unit effects. The main results show the Engel spending curves are S-shaped. Income elasticities for energy spending are U-shaped and lower than unity, suggesting that energy services are a necessity for households. Moreover, the findings show that the income elasticity of energy spending is somewhat higher in the long run. Finally, we find a dynamic link between energy spending and income changes rather than a fixed budget threshold where basic needs are met. Hence, we suggest policy approaches that enable households to find their individual utility maximizing energy spending levels.Keywords Wed, 03 Oct 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243976 2012-10-03T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243975 Title: Robust Standard Errors in Transformed Likelihood Estimation of Dynamic Panel Models Authors: Hayakawa, Kazuhiko; Pesaran, M. Hashem Abstract: This paper extends the transformed maximum likelihood approach for estimation of dynamic panel data models by Hsiao, Pesaran, and Tahmiscioglu (2002) to the case where the errors are crosssectionally heteroskedastic. This extension is not trivial due to the incidental parameters problem that arises, and its implications for estimation and inference. We approach the problem by working with a mis-specified homoskedastic model. It is shown that the transformed maximum likelihood estimator continues to be consistent even in the presence of cross-sectional heteroskedasticity. We also obtain standard errors that are robust to cross-sectional heteroskedasticity of unknown form. By means of Monte Carlo simulation, we investigate the finite sample behavior of the transformed maximum likelihood estimator and compare it with various GMM estimators proposed in the literature. Simulation results reveal that, in terms of median absolute errors and accuracy of inference, the transformed likelihood estimator outperforms the GMM estimators in almost all cases. Tue, 08 May 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243975 2012-05-08T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243974 Title: The political economy of electricity market liberalization Authors: Erdogdu, Erkan Abstract: More than half of the countries in the world have introduced a reform process in their power sectors and billions of dollars have been spent on liberalizing electricity markets around the world. Ideological considerations, political composition of governments and educational/professional background of leaders have played and will play a crucial role throughout the reform process. Adapting a political economy perspective, this paper attempts to discover the impact of political economy variables on the liberalization process in electricity markets. Empirical models are developed and analysed using panel data from 55 developed and developing countries covering the period 1975ﾖ2010. The research findings suggest that there is a significant negative relationship between electricity market liberalization and the size of industry sector, meaning that countries with larger industry sectors tend to liberalize less. Also, we detect a negative correlation between polity score and power sector liberalization, that is; it cannot be argued that liberalization policies are stronger in more democratic countries. On the other hand, our results imply that countries that receive foreign financial aid or assistance are more likely to liberalize their electricity markets. In OECD countries, single-party governments accelerate the reform process by reducing public ownership and vertical integration. Moreover, we detect a negative relationship between the years the chief executive has been in office and the reform progress in OECD countries. Furthermore, we identify a decrease in vertical integration in electricity industry during the terms of parties with ﾓrightﾔ or ﾓleftﾔ ideologies in OECD countries. Additionally, professional and educational background of head of executive branch (prime minister, president and so on) seem to have very significant impact on reform process in OECD countries, but this is not the case in non-OECD countries. Leaders with a professional background as entrepreneurs speed up electricity market liberalization process in OECD countries while those with a background as economists slow it down. As for educational background, the reforms seem to progress slower in OECD countries if the head of executive has an educational background in economics or natural science. As a final point, the study suggests that EU or OECD membership, the existence of electricity market reform idea, population density, electricity consumption, income level, educational level, imports of goods and services (as % of GDP) and country specific features have a strong correlation with liberalization process in electricity markets. Wed, 16 May 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243974 2012-05-16T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243973 Title: Dynamic Long-Term Modelling of Generation Capacity Investment and Capacity Margins Authors: Eager, Dan; Hobbs, Benjamin; Bialek, Janusz Abstract: Many governments who preside over liberalised energy markets are developing policies aimed at promoting investment in renewable generation whilst maintaining the level of security of supply customers have come to expect. Of particular interest is the mix and amount of generation investment over time in response to policies promoting high penetrations of variable output renewable power such as wind. Modelling the dynamics of merchant generation investment in market environments can inform the debate. Such models need improved methods to calculate expected output, costs and revenue of thermal generation subject to varying load and random independent thermal outages in a power system with high penetrations of wind. This paper presents a dynamic simulation model of the aggregated Great Britain (GB) generation investment market. The short-term energy market is simulated using probabilistic production costing based on the Mix of Normals distribution technique with a residual load calculation (load net of wind output). Price mark-ups due to market power are accounted for. These models are embedded in a dynamic model in which generation companies use a Value at Risk (VaR) criterion for investment decisions. An `energy-only' market setting is used to estimate the economic profitability of investments and forecast the evolution of security of supply. Simulated results for the GB market case study show a pattern of increased relative security of supply risk during the 2020s. In addition, fixed cost recovery for many new investments can only occur during years in which more frequent supply shortages push energy prices higher. A sensitivity analyses on a number of key model assumptions provides insight into factors affecting the simulated timing and level of generation investment. This is achieved by considering the relative change in simulated levels of security of supply risk metric such as de-rated capacity margins and expected energy unserved. The model can be used as a decision support tool in policy design, in particular how to address the increased `energy-only market revenue risk facing thermal generation, particularly peaking units, that rely on a small number of high price periods to recover fixed costs and make adequate returns on investment. Tue, 24 Apr 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243973 2012-04-24T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243972 Title: Economic Rationale for Safety Investment in Integrated Gasification Combined-Cycle Gas Turbine Membrane Reactor Modules Authors: Koc, Reyyan; Kazantzis, Nikolaos K.; Nuttall, William J.; Ma, Yi Hua Abstract: A detailed Net Present Value (NPV) model has been developed to evaluate the economic viability of an Integrated Gasification Combined Cycle ﾖ Membrane Reactor (IGCC-MR) power plant intended to provide an electricity generating and pure H2 (hydrogen) producing technology option with significantly lower air pollutants and CO2 (carbon dioxide) emission levels, where the membrane reactor module design conforms also to basic inherent safety principles. Sources of irreducible uncertainty (market, regulatory and technological) are explicitly recognized, such as the power plant capacity factor, Pd (palladium) price, membrane life-time and CO2 prices (taxes) due to future regulatory action/policies. The effect of the above uncertainty drivers on the projectﾒs/plantﾒs value is elucidated using a Monte-Carlo simulation technique that enables the propagation of the above uncertain inputs through the NPV-model, and therefore, generate a more realistic distribution of the plantﾒs value rather than a single-point/estimate that overlooks these uncertainties. The simulation results derived suggest that in the presence of (operational, economic and regulatory) uncertainties, inherently safe membrane reactor technology options integrated into IGCC plants could become economically viable even in the absence of any valuation being placed on human life or quality of life by considering only equipment damage and interruption of business/lost production cost. Comparatively more attractive NPV distribution profiles are obtained when concrete safety risk-reducing measures are taken into account through pre-investment in process safety (equipment) in a pro-active manner, giving further credence to the thesis that process safety investments may result in enhanced economic performance in the presence of irreducible uncertainties. Tue, 08 May 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243972 2012-05-08T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243971 Title: A cross country analysis of electricity market reforms Authors: Erdogdu, Erkan Abstract: The paper explores whether the question of why some countries are able to implement more extensive reforms is closely related to the question of why some countries have better institutions than others. We analyse this question by using an empirical econometric model based on Poisson regression with cross-section data covering 51 US states, 13 Canada states and 51 other countries. The results show that both the background of the chairperson of electricity market regulatory agency when reforms started and the minister/governor at that time and institutional endowments of a country are important determinants of how far reforms have gone in a country. Our results also suggest that any improvement in the investment environment contributes to the scope of reforms. On the other hand, there seems to be a negative relationship between reform progress and civil liberties, which may prove that reforms may be limited in democratic countries with strong civil society institutions such as trade unions or other organized structures in the society that may consider reforms as ﾑharmfulﾒ to their self-interest. Mon, 18 Jun 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243971 2012-06-18T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243970 Title: Persistent Habits, optimal Monetary Policy Inertia and Interest Rate Smoothing Authors: Corrado, Luisa; Holly, Sean; Raissi, Mehdi Abstract: Dynamic stochastic general equilibrium models featuring imperfect competition and nominal rigidities have become central for the analysis of the monetary transmission mechanism and for understanding the conduct of monetary policy. However, it is agreed that the benchmark model fails to generate the persistence of output and inflation that is observed in the data. Moreover, it cannot provide a theoretically well-grounded justification for the interest rate smoothing behaviour of monetary authorities. This paper attempts to overcome these deficiencies by embedding a multiplicative habit specification in a New Keynesian model. We show that this particular form of habit formation can explain why monetary authorities smooth interest rates. Mon, 29 Oct 2012 00:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243970 2012-10-29T00:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243969 Title: Herding in Financial Behaviour Authors: Baddeley, Michelle; Burke, C.; Schultz, W.; Tobler, P. Abstract: Experimental analyses have identified significant tendencies for individuals to follow herd decisions, a finding which has been explained using Bayesian principles. This paper outlines the results from a herding task designed to extend these analyses using evidence from a functional magnetic resonance imaging (fMRI) study. Empirically, we estimate logistic functions using panel estimation techniques to quantify the impact of herd decisions on individuals' financial decisions. We confirm that there are statistically significant propensities to herd and that social information about others' decisions has an impact on individuals' decisions. We extend these findings by identifying associations between herding propensities and individual characteristics including gender, age and various personality traits. In addition fMRI evidence shows that individual differences correlate strongly with activations in the amygdala ﾖ an area of the brain commonly associated with social decision-making. Individual differences also correlate strongly with amygdala activations during herding decisions. These findings are used to construct a two stage least squares model of financial herding which confirms that individual differences and neural responses play a role in modulating the propensity to herd. Tue, 08 May 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243969 2012-05-08T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243968 Title: Sustainability Indicators for Open-Cycle Thorium-Fuelled Nuclear Energy Authors: Ashley, S.F.; Fenner, R.A.; Nuttall, W.J.; Parks, G.T. Abstract: The potential for countries which currently have a nominal nuclear energy infrastructure to adopt thorium-uranium-fuelled nuclear energy systems, using a once-through ﾓopenﾔ nuclear fuel cycle, has been presented by the International Atomic Energy Agency. This paper highlights Generation III and III+ nuclear energy technologies that could potentially adopt an open thorium-uranium fuel cycle and qualitatively highlights the main differences between the open thorium-uranium and open uranium fuel cycles. Furthermore, 28 indicators (and corresponding metrics) have been identified that could elucidate the advantages and disadvantages of nuclear energy systems which utilise thorium-uranium fuels in an open cycle. Such systems will be compared to an AREVA EPR operating with a once-through uranium fuel cycle. The indicators determined in this work have been drawn by grouping 270 indicators from eight previous studies of indicators associated with holistic and specific appraisals of the various life-cycle stages associated with the nuclear fuel cycle. The 28 indicators cover technoeconomic, environmental, waste, social, and proliferation-resistance themes and can be determined quantitatively, either by explicit determination or from an appropriate sensitivity analysis. Wed, 27 Jun 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243968 2012-06-27T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243967 Title: Building performance evaluation and certification in the UK Authors: Kelly, Scott; Pollitt, Michael; Crawford Brown, Doug Abstract: Improving the efficiency and performance of the UK residential sector is now necessary for meeting future energy and climate change targets. Building Performance Evaluation and Certification (BPEC) tools are vital for estimating and recommending cost effective improvements to building energy efficiency and lowering overall emissions. In the UK, building performance is estimated using the Standard Assessment Procedure (SAP) for new dwellings and Reduced SAP (RdSAP) for existing dwellings. Using a systems based approach we show there are many opportunities for improving the effectiveness of BPEC tools. In particular, if the building stock is going to meet future energy and climate change targets the system driving building energy efficiency will need to become more efficient. In order to achieve this goal, building performance standards across Europe are compared highlighting the most effective strategies where they are found. It is shown that the large variance between estimated and actual energy performance from dwellings in the UK may be preventing the adoption of bottom-up energy efficiency measures. We show that despite popular belief, SAP and RdSAP do not estimate building energy efficiency but instead attempt to estimate the cost-effective performance of a building and thus create perverse incentives that may lead to additional CO2 emissions. In this regard, the SAP standard confounds cost-effectiveness, energy efficiency and environmental performance giving an inadequate estimate of all three policy objectives. Important contributions for improving measurement, analysis, synthesis and certification of building performance characteristics are offered. Wed, 03 Oct 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243967 2012-10-03T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243966 Title: The robustness of agent-based models of electricity wholesale markets Authors: Newberry, David Abstract: Agent-based modelling is an attractive way of finding equilibria in complex problems involving strategic behaviour, particularly in electricity markets with transmission constraints. However, while it may be possible to demonstrate convergence of learning behaviour to a Nash equilibrium, that is not sufficient to establish that the equilibrium is robust against more sophisticated strategy choices. This note examines two particular forms of agent-based modelling used in electricity market models, both variants of mark-up pricing, and demonstrates that they are robust against other strategies.Keywords Sun, 27 May 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243966 2012-05-27T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243965 Title: Asset price manipulation with several traders Authors: Walther, Ansgar Abstract: In financial markets with asymmetric information, traders may have an incentive to forgo profitable deals today in order to preserve their informational advantage for future deals. This sort of manipulative behaviour has been studied in markets with one informed trader (Kyle 1985, Chakraborty and Yilmaz 2004). The effect is slower social learning. Using an extension of Glosten and Milgromﾒs (1985) trading model, we study this effect in markets with N informed traders. As N grows large, each traderﾒs price impact subsides, and so does manipulation in equilibrium. However, the impact of manipulation on social learning can be increasing in N. As N increases, each trader individually manipulates less. But nonetheless, the increased number of manipulative actions introduces enough noise to exacerbate the impact of manipulation on learning. Sun, 07 Oct 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243965 2012-10-07T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243964 Title: From Open to Secret Ballot Authors: Aidt, Toke S.; Jensen, Peter S. Abstract: The secret ballot is one of the cornerstones of democracy. We contend that the historical process of modernization caused the switch from open to secret ballot with the underlying mechanism being that income growth, urbanization, and rising education standards undermined vote markets and made electoral corruption uneconomical. We undertake event history studies of ballot reform in Western Europe and the Americas during the 19th and 20th centuries to establish that modernization was systematically related to ballot reform. We study electoral turnout before and after ballot reform amongst the US states and British parliamentary constituencies to substantiate the hypothesis that modernization made vote buying uneconomical. Tue, 24 Apr 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243964 2012-04-24T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243963 Title: Congestion management in electricity networks Authors: Holmberg, Pärr; Lazarczyk, Ewa Abstract: Wholesale electricity markets use different market designs to handle congestion in the transmission network. We compare nodal, zonal and discriminatory pricing in general networks with transmission constraints and loop flows. We conclude that in large games with many producers who are allowed to participate in the real-time market the three market designs result in the same efficient dispatch. However, zonal pricing with counter-trading results in additional payments to producers in exportconstrained nodes. Tue, 24 Apr 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243963 2012-04-24T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243962 Title: Optimal Treatment of an SIS Disease with Two Strains Authors: Telalagic, Selma Abstract: This paper explores optimal treatment of an SIS (Susceptible-Infected-Susceptible) disease that has two strains with diﾤerent infectivities. When we assume that neither eradication nor full infection are possible, it is shown that there are two categories of equilibria. First, there are two continua of interior equilibria characterised by a fixed, positive total level of infection, where both strands of the disease prevail. It is hypothesised that a Skiba curve of indiﾤerence lies between them. Second, there are two sets of equilibria where one strand of the disease is eradicated asymptotically. The feasibility of equilibria depends on parameter assumptions; a combination of low natural rate of recovery and large diﾤerence between infectivities leaves only a small proportion of equilibria as feasible. Simulations exploring the relationship between cost and optimal policy are carried out. There exists a parameter range such that, counter-intuitively, it is optimal to allow the high-infectivity strain of the disease to prevail, while asymptotically eradicating the low-infectivity strain. Within this parameter range, there is added benefit from policy flexibility. At higher costs, simulations of the interior equilibria demonstrate the existence of a Skiba curve. The curve delineates two regions, each of which has a clear optimal policy. Tue, 29 May 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243962 2012-05-29T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243961 Title: Designing electricity transmission auctions Authors: Greve, Thomas; Pollitt, Michael G. Abstract: The UK has ambitious plans for exploiting offshore wind for electricity production in order to meet its challenging target under the EU Renewable Energy Directive. This could involve investing up to 20bn in transmission assets to bring electricity ashore. An investment of this magnitude calls for an efficient mechanism to determine which projects get financed and ensuring that only those projects that are selected can be delivered at least costs to consumers. The electricity regulatorﾒs ongoing tender auctions are likely to work well for point-to-point transmission and for networks already built. However, it is still unclear what kinds of models could be considered for complex meshed offshore (and onshore) networks where licences are granted not only to own and operate, but also to build a transmission network. This paper provides an extensive survey on the current theory and experience of auctions. The main objective is to discuss the design of auctions for transmission assets in which bidding for packages of transmission assets is a possibility. Thu, 25 Oct 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243961 2012-10-25T23:00:00Z http://www.dspace.cam.ac.uk:80/handle/1810/243960 Title: Option values of low carbon technology policies Authors: Finon, Dominique; Meunier, Guy Abstract: In this paper, the political dilemma of the deployment of a large-size low carbon technology (LCT) is analyzed. A simple dynamic model is developed to analyze the interrelation between irreversible investments and learning-by-doing within a context of exogenous uncertainty on carbon price. Contrasting results are obtained. In some cases, the usual irreversibility effects hold, fewer plants of the LCT should be developed when information is anticipated. In other cases, this result is reversed and information arrival can justify an early deployment of the LCT. More precisely, it is shown that marginal reasoning is limited when learning by-doing, and more generally endogenous technical change, is considered. When information arrival is anticipated the optimal policy can move from a corner optimum with no LCT deployment to an interior optimum with a strictly positive development. Mon, 18 Jun 2012 23:00:00 GMT http://www.dspace.cam.ac.uk:80/handle/1810/243960 2012-06-18T23:00:00Z