Network Cournot Competition

Cournot competition is a fundamental economic model that represents firms competing in a single market of a homogeneous good. Each firm tries to maximize its utility---a function of the production cost as well as market price of the product---by deciding on the amount of production. In today's dynamic and diverse economy, many firms often compete in more than one market simultaneously, i.e., each market might be shared among a subset of these firms. In this situation, a bipartite graph models the access restriction where firms are on one side, markets are on the other side, and edges demonstrate whether a firm has access to a market or not. We call this game \emph{Network Cournot Competition} (NCC). In this paper, we propose algorithms for finding pure Nash equilibria of NCC games in different situations. First, we carefully design a potential function for NCC, when the price functions for markets are linear functions of the production in that market. However, for nonlinear price functions, this approach is not feasible. We model the problem as a nonlinear complementarity problem in this case, and design a polynomial-time algorithm that finds an equilibrium of the game for strongly convex cost functions and strongly monotone revenue functions. We also explore the class of price functions that ensures strong monotonicity of the revenue function, and show it consists of a broad class of functions. Moreover, we discuss the uniqueness of equilibria in both of these cases which means our algorithms find the unique equilibria of the games. Last but not least, when the cost of production in one market is independent from the cost of production in other markets for all firms, the problem can be separated into several independent classical \emph{Cournot Oligopoly} problems. We give the first combinatorial algorithm for this widely studied problem

Endogenous Risks and Learning in Climate Change Decision Analysis

We analyze the effects of risks and learning on climate change decisions. A two-stage, dynamic, climate change stabilization problem is formulated. The explicit incorporation of ex-post learning induces risk aversion among ex-ante decisions, which is characterized in linear models by VaR- and CVaR-type risk measures. Combined with explicit introduction of "safety" constraints, it creates a "hit-or-miss" type decision-making situation and shows that, even in linear models, learning may lead to either less-or more restrictive ex-ante emission reductions. We analyze stylized elements of the model in order to identify the key factors driving outcomes, in particular, the critical role of quantiles of probability distributions characterizing key uncertainties

Opportunities for advances in climate change economics

There have been dramatic advances in understanding the physical science of climate change, facilitated by substantial and reliable research support. The social value of these advances depends on understanding their implications for society, an arena where research support has been more modest and research progress slower. Some advances have been made in understanding and formalizing climate-economy linkages, but knowledge gaps remain [e.g., as discussed in (1, 2)]. We outline three areas where we believe research progress on climate economics is both sorely needed, in light of policy relevance, and possible within the next few years given appropriate funding: (i) refining the social cost of carbon (SCC), (ii) improving understanding of the consequences of particular policies, and (iii) better understanding of the economic impacts and policy choices in developing economies

Learning and enhanced climate representation in integrated assessment models. Final report, September 1994--May 1997

The objective of the project is to enhance capabilities for integrated-assessment modeling in two major areas: learning/R and D/information acquisition and the nexus between climate dynamics and climate impacts. In the first of these areas, the author`s objective is to improve the way in which economic models deal with learning (endogenous and/or exogenous) within an economy. This would obviously include the R and D process, whereby knowledge about climate change (and many other things) is acquired over time and influences regulatory actions. The work in climate dynamics is focused in part on incorporating the regional climate-change results from equilibrium and transient general circulation model (GCM) simulations in the simplified integrated-assessment model. While the work is generic and therefore applicable to any integrated-assessment model, it is done in the context of a standard Ramsey growth model. Thus, the work involves theoretical conceptualization, empirical implementation in an integrated-assessment model, and analysis using that model

Air quality regulation in spatial equilibrium models

A discussion is presented of methods for including a wide variety of air pollution regulations within the class of economic equilibrium models where allocation is based on constrained optimization. The first part of the paper discusses current air pollution regulation in the United States and possible future regulation. This is followed by the presentation of a prototype spatial equilibrium model within which a number of regulatory mechanisms are explicitly represented. These include efficient and zoned charges, statically and dynamically efficient permit systems, technological control and hybrid permit/charge systems

Competitive interstate taxation of western coal

This paper analyzes the potential market power of western states in setting coal severance taxes. An attempt to determine the emphasis placed by the western states on the development of their coal resources is also made. Three market structures are analyzed. One involves a western regional cartel, setting taxes collectively. The other cases are noncooperative tax equilibria with Montana and Wyoming competing against each other. We study the effects on these equilibria of changes in each region's relative emphasis on development of coal resources vs tax revenue. The welfare impacts of these tax setting policies are also addressed. The analysis is based on an activity analysis of US coal markets. The results show that the taxes associated with the noncooperative competitive tax equilibria are close to present tax levels. Additionally, we conclude that western states currently are quite efficient extractors of economic rent from coal produced within their boundaries, in terms of welfare loss per dollar of tax revenue collected. 2 figures

Effect of market structure on international coal trade

This paper is concerned with the determinants of international steam-coal trade. Most work in projecting coal trade has been either qualitative (a consensus of experts) or, if quantitative, has been based on competitive spatial-equilibrium models. Unfortunately, the competitive model of trade does not appear to account for observed and anticipated trade flows. This is consistent with findings in the commodity trade literature that, although markets may behave in a rational economic fashion, market concentration among producers, traders, and consumers leads to trade patterns significantly different than those associated with competitive markets. The purpose of this paper is to explore the significance and effect on patterns of steam-coal trade of several deviations from the simple competitive model. In addition to perfect competition, we examine monopoly (South Africa) and duopoly (South Africa, Australia) with a competitive fringe (US, Canada, Poland, China and Columbia). Using a simple equilibrium model of coal trade, we examine these market structures and evaluate the extent to which they can explain existing and anticipated trade patterns

Clean air and energy: from conflict to reconciliation. [Cost benefit analysis]

Unconstrained energy resource development in the Rocky Mountain west is likely to threaten the environment and the health and well-being of the people. Impacts may be associated with visibility degradation, toxic concentrations of gases, and deposition of acidic or toxic substances. Because the possible benefits of energy development in the region are very large, there is great concern that constraints imposed by air quality regulation may preclude the use of important resources or make unduly expensive energy produced from the region. The conflict between energy and clean air in the region is exacerbated by non-energy sources, such as copper smelters and urban areas, that already pose significant environmental threats. The hard policy question is not how to preserve clean air resources or how to develop energy but how to achieve and balance both goals. The effects and regulatory costs and benefits of air pollution control are discussed, and policy directions to protect air quality while pursuing energy development are presented