A Portfolio Approach to Venture Capital Financing

This paper studies the contracting choices between an entrepreneur and venture capital investors in a portfolio context. We rely on the mean-variance framework and derive the optimal choices for an entrepreneur with and without the presence of different kinds of venture capitalists. In particular, we show that the entrepreneur always has the incentive to share the risk and benefits of the venture whenever possible. On the basis of their objectives and characteristics, we distinguish the situations of the corporate, independent, and bank-sponsored venture capital funds. Our framework enables us to derive the optimal contract design for the entrepreneur, featuring the choice of investor, the entrepreneur’s investment in the venture, and her dilution in the project’s equity as a function of her bargaining power. This result allows us to characterize the choice of the investor depending on her cost of equity and debt capital. In addition to project size and risk, entrepreneur’s risk aversion turns out to be a critical determinant of VC investor choice –a finding which is strongly supported by a panel analysis of VC fund flows for 5 European countries over the 2002-2009 period.Venture capital, Portfolio choice, Entrepreneur, Risk aversion

Harnessing Flexible and Reliable Demand Response Under Customer Uncertainties

Demand response (DR) is a cost-effective and environmentally friendly approach for mitigating the uncertainties in renewable energy integration by taking advantage of the flexibility of customers' demands. However, existing DR programs suffer from either low participation due to strict commitment requirements or not being reliable in voluntary programs. In addition, the capacity planning for energy storage/reserves is traditionally done separately from the demand response program design, which incurs inefficiencies. Moreover, customers often face high uncertainties in their costs in providing demand response, which is not well studied in literature. This paper first models the problem of joint capacity planning and demand response program design by a stochastic optimization problem, which incorporates the uncertainties from renewable energy generation, customer power demands, as well as the customers' costs in providing DR. We propose online DR control policies based on the optimal structures of the offline solution. A distributed algorithm is then developed for implementing the control policies without efficiency loss. We further offer enhanced policy design by allowing flexibilities into the commitment level. We perform real world trace based numerical simulations. Results demonstrate that the proposed algorithms can achieve near optimal social costs, and significant social cost savings compared to baseline methods

What's Blocking the Sun?: Solar Photovoltaics for the U.S. Commercial Market

Provides an overview of installation trends and investment climate for solar photovoltaics in the U.S. commercial sector, including policy and economic obstacles. Recommends strategies for the solar industry, the commercial sector, and policy makers

Theories of Asbestos Litigation Cost - Why Two Decades of Procedural Reform Have Failed to Reduce Claimants\u27 Expenses

In twenty years of asbestos litigation, procedural reforms at all levels of the civil litigation system have failed to reduce plaintiffs’ attorneys’ fees. The result has been dramatic undercompensation of asbestos tort victims. This paper attempts to explain this remarkable fact using economic methodology. The paper offers three theories: First, that the continuing difficulty of assessing causation in asbestos and other mass tort cases predictably impedes the efforts of procedural reform to reduce costs; second, that changes in defendant and insurer risk attitudes have generated costly litigation; third, that collusion of plaintiffs’ attorneys to maintain prices cannot be ruled out. Each of these theories has some empirical support. Further, regardless of which turns out to be correct, the continuing high costs of civil litigation mean that resolution through the bankruptcy system will predictably harm future claimants, an unfair outcome. In the final assessment, civil procedure reform, the favored mechanism for resolving the asbestos case backlog, cannot achieve its objectives. Rather, reform must take into account substantive law and the motives and incentives of actors in the legal system. Holistic analysis of this type lends support to a comprehensive administrative remedies scheme, which has the best chance of decreasing the costs of compensation

ZERPAs: Financing the transition to net zero under future zero-emissions resource supply constraints

The low carbon transition relies on zero emissions resources: non-emitting electricity, biomass and negative emissions. Given ballooning demand, these markets may well face shortages, which could impact the UK's emissions targets, individual livelihoods, and businesses' ability to fulfil their climate commitments. This report addresses the third consequence and its impact on finance. Resource shortages pose a serious and costly threat to businesses: in an increasingly climate-regulated world, not having a credible plan to reduce emissions isn’t a viable position. However, there is no existing mechanism to translate climate strategies into credible commitments on corporate balance sheets. This report proposes a new financial market to address this challenge. The market will trade long-term contracts for zero emissions resources. Suppliers will agree to deliver a certain amount of resource over a period of 15-odd years. The users, who promise a set price over that period, then have a secure supply - and a verifiable transition plan that they can show climate-wary investors. Today’s finance providers cannot assess the climate risks of investments; ZERPAs, or some equivalent mechanism, would allow them to separate credible commitments from insincere, misguided or implausible promises that undermine the transition to a net zero economy