Deposit Insurance in General Equilibrium

We study the consequences and optimal design of bank deposit insurance in a general equilibrium model. The model involves two production sectors. One sector is financed by issuing bonds to risk-averse households. Firms in the other sector are monitored and financed by banks. Households fund banks through deposits and equity. Deposits are explicitly insured by a de- posit insurance fund. Any remaining shortfall is implicitly guaranteed by the government. The deposit insurance fund charges banks a premium per unit of deposits whereas the government finances any necessary bail-outs by lump-sum taxation of households. When the deposit insurance premium is actuarially fair or higher than actuarially fair, two types of equilibria emerge: One type of equilibria supports the socially optimal (Arrow-Debreu) allo- cation, and the other type does not. In the latter case, bank lending is too large relative to equity and the probability that the banking system collapses is positive. Next, we show that a judicious combination of deposit insurance and reinsurance eliminates all non-optimal equilibrium allocations

Equitable and Effective Climate Policy: Integrating Less Developed Countries into a Global Climate Agreement

ISSN:1612-4804ISSN:1612-481

Election Security and Economics: It's All About Eve

A system's security must be understood with respect to the capabilities and be- haviors of an adversary Eve. It is often assumed in security analysis that Eve acts as ma- liciously as possible. From an economic perspective, Eve tries to maximize her utility in a game with other participants. The game's rules are determined by the system and its security mechanisms, but Eve can invent new ways of interacting with participants. We show that Eve can be used as an interface to explore the interplay between security and economics in the domain of elections. Through examples, we illustrate how reasoning from both disciplines may be combined to explicate Eve's motives and capabilities and how this analysis could be used for reasoning about the security and performance of elections. We also point to future research directions at the intersection of these disciplines

Use Rights for Common Pool Resources and Economic Development

This paper explores the long–run development of an economy with a traditional sector based on common–pool resource-use, a modern, resource–independent sector with fixed entry costs, and an imperfect capital market. We show theoretically that introducing resource-use regulations increases incomes in the traditional sector and that this can trigger a development process with labor reallocation to the modern sector. Allowing trade of resource-use rights, or distributing resource-use rights unequally, broadens the scope for development

Green Tax Reform, Endogenous Innovation and the Growth Dividend

We study theoretically and numerically the effects of an environmental tax reform using endogenous growth theory. In the theoretical part, mobile labor between manufacturing and R&D activities, and elasticity of substitution between labor and energy in manufacturing lower than unity allow for a growth dividend, even if we consider preexisting tax distortions. The scope for innovation is reduced when we consider direct financial investment in the lab, or elastic labor supply. We then apply the core theoretical model to a real growing economy and find that a boost in economic growth following such a carbon policy is a possible outcome. Lump-sum redistribution performs best in terms of effciency measured by aggregate welfare, while in terms of equity among social segments its progressive character fails when we consider very high emissions reduction targets

A Note on the Different Interpretation of the Correlation Parameters in the Bivariate Probit and the Recursive Bivariate Probit

This note makes the point that, if a Bivariate Probit (BP) model is estimated on data arising from a Recursive Bivariate Probit (RBP) process, the resulting BP correlation parameter is a weighted average of the RBP correlation parameter and the parameter associated to the endogenous binary variable. Two corollaries follow this proposition: i) a zero correlation parameter in a BP model, usually interpreted as evidence of independence between the binary variables under study, may actually mask the presence of a RBP process; and ii) the interpretation of the correlation parameter in the RBP is not the same as in the BP -- i.e. the RBP correlation parameter does not necessarily reflect the correlation between the binary variables under study

Prices vs. Equity in International Climate Policy: A Broad Perspective

Effective climate policy can be achieved by implementing either a global uniform carbon price or a global cap and trade system. But depending on the allocation of tax revenues and initial pollution per-mits, the instruments have very different wealth implications for the individual countries. The paper highlights the distributional effects of climate policies by calculating and comparing emission budget alloca-tions under three different schemes that are in line with a 2?C warm-ing target. We calculate implicit carbon budgets up to 2050 under a globally uniform CO2 price, a design proposed by Weitzman (2014). We then compare the allocation with the budget derived from equity principles by Bretschger (2013) and with emission budgets under egalitarian emission rights as proposed by BASIC (2011). Our results show that implicit burden sharing across countries varies substantially with the different policy regimes. Wealthy countries with low energy prices tend to obtain the highest emission budget under a price scheme while poor low-emission countries receive the highest budget under egalitar-ian emission rights. The budget positions of India and the US are illustrative for the conflicting country interests

Transient and Persistent Energy Efficiency in the US Residential Sector: Evidence from Household-level Data

In this paper, we measure the energy efficiency in residential energy consumption using a panel dataset comprised of 40,246 observations from US households observed over 1997-2009. We fit a stochastic frontier model of the minimum input of energy needed to meet the level of energy services demanded by the household. This benchmarking exercise produces a transient and a persistent efficiency index for each household and each time period. We estimate that the US residential sector could save approximately 10% of its total energy consumption if it reduced persistent inefficiencies and 17% if it was able to eliminate transient inefficiencies. These figures are in line with the assessment by McKinsey (2008, 2009, 2013) and greater than those indicated by the Electric Power Research Institute (2009). They suggest that savings in energy use and associated emissions of greenhouse gases (and other pollutants) may benefit from both policy measures that attain short-run behavioral changes (e.g., nudges, social norms, display of real-time information about usage, and real-time pricing) as well measures aimed at the long run, such as energy-efficiency regulations, incentives on the purchase of high-efficiency equipment and incentives towards a change of habits in the use of the equipment