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Pricing Carbon for Electricity Generation: National and International Dimensions
In this paper, which forms a chapter in the forthcoming Book âÂÂDelivering a Low Carbon Electricity System: Technologies, Economics and PolicyâÂÂ, Grubb and Newbery examine how carbon for electricity generation should be priced. They begin by suggesting that it is not clear what the correct price of carbon is, but that it spans the whole range of economically plausible prices. They then go on to discuss the theoretical merits of taxes versus quotas, concluding that theoretically a stable tax would best reflect the true social cost of emissions, which should not change with market conditions. They then go to evaluate the EU Emissions Trading Scheme where allowances for the emission of CO2 are traded (EUAs). The price signals offered by the scheme in its first trading period have been very unsatisfactory with high variability and the price trending down towards very low levels as it has become clear that governments were much too generous in their initial allocation of quotas. What is needed is a stable investment environment for low carbon generation investments. They discuss a number of policy options to achieve this: long period commitments on quotas; allowing unconstrained banking and borrowing of EUAs over multiple periods; long term price declarations to be used in allocation auctions; government issued contracts for differences on the future carbon price; or simply to issue low-carbon electricity contracts. The authors conclude with a discussion of the scope for international agreements on carbon emissions reduction. They conclude that imperfect though it is the EU ETS is a good place to start to link up emerging trading regimes, and that quota systems have more of a chance of commanding international agreement at least initially. However any international climate change agreement will be difficult to establish
Neuroanatomy accounts for age-related changes in risk preferences
Many decisions involve uncertainty, or ‘risk’, regarding potential outcomes, and substantial empirical evidence has demonstrated that human aging is associated with diminished tolerance for risky rewards. Grey matter volume in a region of right posterior parietal cortex (rPPC) is predictive of preferences for risky rewards in young adults, with less grey matter volume indicating decreased tolerance for risk. That grey matter loss in parietal regions is a part of healthy aging suggests that diminished rPPC grey matter volume may have a role in modulating risk preferences in older adults. Here we report evidence for this hypothesis and show that age-related declines in rPPC grey matter volume better account for age-related changes in risk preferences than does age per se. These results provide a basis for understanding the neural mechanisms that mediate risky choice and a glimpse into the neurodevelopmental dynamics that impact decision-making in an aging population
Dynamic nonlinear pricing: Biased expectations, inattention, and bill shock
Recent research highlights the importance of biased expectations and inattention for nonlinear pricing in dynamic environments. Findings are: (1) Three-part tariffs, such as cellular service contracts, exploit consumer overconfidence. (2) Surprise penalty fees may be used to further exploit biased beliefs or alternatively to price discriminate more efficiently whenever consumers are inattentive. (3) Implementing the recent bill-shock agreement between cellular carriers and the FCC is predicted to harm rather than help consumers when endogenous price changes are taken into account
Firms write contracts to exploit consumer overconfidence
Competition may not protect consumers but simple market statistics tell us when policy can, writes Michael D. Grub
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