Robust Line Planning in case of Multiple Pools and Disruptions

We consider the line planning problem in public transportation, under a robustness perspective. We present a mechanism for robust line planning in the case of multiple line pools, when the line operators have a different utility function per pool. We conduct an experimental study of our mechanism on both synthetic and real-world data that shows fast convergence to the optimum. We also explore a wide range of scenarios, varying from an arbitrary initial state (to be solved) to small disruptions in a previously optimal solution (to be recovered). Our experiments with the latter scenario show that our mechanism can be used as an online recovery scheme causing the system to re-converge to its optimum extremely fast.Comment: To appear in TAPAS 201

Smoothing Sudden Stops

Emerging economies are exposed to severe and sudden shortages of international financial resources. Yet domestic agents seem not to undertake enough precautions against these sudden stops. Following our previous work, we highlight in this paper the central role played by limited domestic development in ex-ante (insurance) and ex-post (spot) financial markets in generating this collective undervaluation of external resources and insurance. Within this structure, this paper studies several canonical policies to counteract the external underinsurance. We do this by first solving for the optimal mechanism given the constraints imposed by limited domestic financial development, and then considering the main - in terms of the model and practical relevance - implementations of this mechanism.

On the Optimal Skill Distribution in a Mirrleesian Economy

People are heterogenous in the skills by which they turn eort into output. A central question in normative public economics is how to redistribute resources from more- to less-skilled individuals eciently. In addition to income taxation, this paper considers another policy tool of redistribution by allowing planner to choose the dispersion of skill distribution given the average skill level of the economy. We nd that, depending on the parameters of the model, either perfectly unequal skill distribution in which one group has a very high skill level and the rest are completely unskilled, or perfectly equal skill distribution in which all agents have the same skill level, is socially optimal, but an interior level of skill inequality is never optimal. We then provide conditions on the parameters under which perfectly equal and perfectly unequal skill distributions are optimal.Skill Distribution, Mirrleesian Taxation, Redistribution, Eciency

SOVEREIGN: An Autonomous Neural System for Incrementally Learning Planned Action Sequences to Navigate Towards a Rewarded Goal

How do reactive and planned behaviors interact in real time? How are sequences of such behaviors released at appropriate times during autonomous navigation to realize valued goals? Controllers for both animals and mobile robots, or animats, need reactive mechanisms for exploration, and learned plans to reach goal objects once an environment becomes familiar. The SOVEREIGN (Self-Organizing, Vision, Expectation, Recognition, Emotion, Intelligent, Goaloriented Navigation) animat model embodies these capabilities, and is tested in a 3D virtual reality environment. SOVEREIGN includes several interacting subsystems which model complementary properties of cortical What and Where processing streams and which clarify similarities between mechanisms for navigation and arm movement control. As the animat explores an environment, visual inputs are processed by networks that are sensitive to visual form and motion in the What and Where streams, respectively. Position-invariant and sizeinvariant recognition categories are learned by real-time incremental learning in the What stream. Estimates of target position relative to the animat are computed in the Where stream, and can activate approach movements toward the target. Motion cues from animat locomotion can elicit head-orienting movements to bring a new target into view. Approach and orienting movements are alternately performed during animat navigation. Cumulative estimates of each movement are derived from interacting proprioceptive and visual cues. Movement sequences are stored within a motor working memory. Sequences of visual categories are stored in a sensory working memory. These working memories trigger learning of sensory and motor sequence categories, or plans, which together control planned movements. Predictively effective chunk combinations are selectively enhanced via reinforcement learning when the animat is rewarded. Selected planning chunks effect a gradual transition from variable reactive exploratory movements to efficient goal-oriented planned movement sequences. Volitional signals gate interactions between model subsystems and the release of overt behaviors. The model can control different motor sequences under different motivational states and learns more efficient sequences to rewarded goals as exploration proceeds.Riverside Reserach Institute; Defense Advanced Research Projects Agency (N00014-92-J-4015); Air Force Office of Scientific Research (F49620-92-J-0225); National Science Foundation (IRI 90-24877, SBE-0345378); Office of Naval Research (N00014-92-J-1309, N00014-91-J-4100, N00014-01-1-0624, N00014-01-1-0624); Pacific Sierra Research (PSR 91-6075-2

The overconfidence problem in insurance markets

Adverse selection has long been recognized as a rationale for government intervention in in- surance markets and for the adoption of public compulsory insurance. A different rationale for compulsory insurance is that overconfident individuals may underinsure because they underes- timate the relevant risks. We show that government intervention is not a Pareto improvement in an adverse selection model with a significant fraction of overcon�dent agents. We underline that behavioral biases need not be the basis for government intervention. In fact, behavioral biases may overturn existing compelling reasons for intervention in the economy. Our model also delivers novel positive implications on aggregate variables that have been at the center of recent empirical investigation

Capital Accumulation and Annuities in an Adverse Selection Economy

This paper suggests that adverse selection problems in competitive annuity markets can generate quantity constrained equilibria in which some agents whose length of lifetime is uncertain find it advantageous to accumulate capital privately. This occurs despite the higher rates of return on annuities. The welfare properties of these allocations are analyzed. It is shown that the level of capital accumulation is excessive in a Paretian sense. Policies which eliminate this inefficiency are discussed.

Comments in Response to FERC Rulemaking on Regional Transmission Organizations

On May 13, 1999 the Federal Energy Regulatory Commission (FERC) issued a Notice of Proposed Rulemaking (NOPR) on Regional Transmission Organizations (RTO). The purpose of the NOPR is to seek comments on proposed regulatory rules that would encourage transmission system owners to participate in regional transmission organizations. Such organizations would manage various aspects of the operation and expansion of the nation's high voltage electric transmission system to support developing competitive wholesale and retail electric generation service markets that rely on these transmission networks. Regional integration of transmission systems is thought to be required to manage more effectively transmission network operations, to internalize various network externalities, and to facilitate the development of competitive electricity markets. Four non-profit Independent System Operators (ISOs) have already been created from the three existing tight power pools covering the Northeastern states and in California. However, the development of similar RTOs in other parts of the country has been slow. The FERC initiative aims at speeding up the development of such regional organizations. My comments focus primarily on the future structure of the regulatory framework that governs how transmission owners and operators will be compensated for providing transmission service. I also present a framework for evaluating the benefits and costs of not-for-profit ISOs that operate transmission facilities owned and maintained by others vs. for-profit Independent Transmission Companies (Transcos) that own, maintain, and operate their own transmission facilities. The success of the ongoing restructuring of the nation's electricity sector and its reliance on decentralized competitive generation service markets depends heavily on the existence of a robust transmission network that operates efficiently. Indeed, the new decentralized industry structure with a large number of economic agents pursuing their own self interests requires a more robust transmission network and enhanced operating capabilities than was the case during the era of vertically integrated regulated monopolies. Recent historical evidence suggests, however, that resources devoted to maintaining, operating, and expanding the nation's transmission networks are declining rather than increasing in relative terms. Continuing to rely on FERC's historical transmission regulatory framework is not likely to foster the kind of robust transmission networks that are required to support efficient competitive electricity markets. Traditional transmission regulatory procedures pay too much attention to the direct costs of transmission (capital and operating costs) and too little attention to the indirect costs of transmission (congestion, ancillary services, and local market power mitigation costs). It is very important for the FERC to adopt new regulatory mechanisms that provide transmission owners and operators with powerful economic incentives to operate transmission networks efficiently and to invest the resources necessary to expand their capabilities efficiently. These incentives should be an integral component of a performance-based regulatory (PBR) framework for the regulation of transmission rates that rewards transmission owners for achieving these objectives and penalizes them for failing to do so. There is a growing debate over whether RTOs should be non-profit ISOs or for-profit Transcos or some combination of the two organizational forms. This debate raises important issues, though the signal to noise ratio that has characterized this debate has not been very high. There are potentially significant costs resulting from the separation of ownership and maintenance decisions from transmission operating decisions, as is the case with ISOs. On the other hand, there are potential benefits associated with independence of the transmission operator from generation and marketing activities and the internalization of significant regional loop flow and related network externalities within a single organization. There are significant incentive issues that must be addressed both for non-profit ISOs and for-profit Transco monopolies. Viewed properly, it is not so much a choice between a not-for-profit ISO and a for-profit Transco, as it is a choice about the distribution of responsibilities between them.

A De-biased Direct Question Approach to Measuring Consumers' Willingness to Pay

Knowledge of consumers' willingness to pay (WTP) is a prerequisite to profitable price-setting. To gauge consumers' WTP, practitioners often rely on a direct single question approach in which consumers are asked to explicitly state their WTP for a product. Despite its popularity among practitioners, this approach has been found to suffer from hypothetical bias. In this paper, we propose a rigorous method that improves the accuracy of the direct single question approach. Specifically, we systematically assess the hypothetical biases associated with the direct single question approach and explore ways to de-bias it. Our results show that by using the de-biasing procedures we propose, we can generate a de-biased direct single question approach that is accu-rate enough to be useful for managerial decision-making. We validate this approach with two studies in this paper.Comment: Market Research, Pricing, Demand Estimation, Direct Estimation, Single Question Approach, Choice Experiments, Willingness to Pay, Hypothetical Bia