Real Options: Applications in Public Economics

This paper illustrates the use of real options principles to value prototypical resource and industryinvestment projects. It captures important competitive/strategic dimensions in a step-by-stepanalysis of investment decisions (options) under uncertainty. It compares and contrasts staticdiscounted cash flow analysis (DCF) with real options analysis using three case studies. The initialexample values a resource extraction process using static DCF and then compares the projectvaluation when future information is valued and acted upon. The second example considers a coaldevelopment and uses the binomial valuation approach to capture the option value associated withhaving the right but not the obligation to exit the development. It contrasts this valuation approachagainst static DCF and highlights that future royalty payments could be underestimated if based onthe standard DCF valuation. The third example analyses the impact of providing a subsidy forhybrid vehicle production to accelerate potential uncertain environmental benefits. Lastly, thesuitability of the standard financial and economic evaluation tools used by treasury agencies isconsidered when projects contain real options.financial economics; investment decisions; public economics; externalities; subsidies; project evaluation

Asymptotic Behavior of Thermal Non-Equilibrium Steady States for a Driven Chain of Anharmonic Oscillators

We consider a model of heat conduction which consists of a finite nonlinear chain coupled to two heat reservoirs at different temperatures. We study the low temperature asymptotic behavior of the invariant measure. We show that, in this limit, the invariant measure is characterized by a variational principle. We relate the heat flow to the variational principle. The main technical ingredient is an extension of Freidlin-Wentzell theory to a class of degenerate diffusions.Comment: 40 page

Tackling the Global NCD Crisis: Innovations in Law and Governance

35 million people die annually of non-communicable diseases (NCDs), 80% of them in low- and middle-income countries—representing a marked epidemiological transition from infectious to chronic diseases and from richer to poorer countries. The total number of NCDs is projected to rise by 17% over the coming decade, absent significant interventions. The NCD epidemic poses unique governance challenges: the causes are multifactorial, the affected populations diffuse, and effective responses require sustained multi-sectorial cooperation. The authors propose a range of regulatory options available at the domestic level, including stricter food labeling laws, regulation of food advertisements, tax incentives for healthy lifestyle choices, changes to the built environment, and direct regulation of food and drink producers. Given the realities of globalization, such interventions require global cooperation. In 2011, the UN General Assembly held a High-level meeting on NCDs, setting a global target of a 25% reduction in premature mortality from NCDs by 2025. Yet concrete plans and resource commitments for reaching this goal are not yet in the offing, and the window is rapidly closing for achieving these targets through prevention--as opposed to treatment, which is more costly. Innovative global governance for health is urgently needed to engage private industry and civil society in the global response to the NCD crisis

The United States\u27 Engagement in Global Tobacco Control: Proposals for Comprehensive Funding and Strategies

Tobacco use kills more people annually than HIV/AIDS, tuberculosis, and malaria combined. Unless action is taken, tobacco-related diseases will kill hundreds of millions more in coming decades, mostly in low- and middle-income countries. Beyond its effects on morbidity and mortality, tobacco use has dramatic social and economic consequences, consuming healthcare budgets, robbing families of their primary wage earners, and hindering economic development. Tobacco consumption is shifting from industrialized to developing countries, spurred by rising incomes, trade liberalization, and intensive marketing. Although Congress empowered the U.S. Food and Drug Administration to regulate tobacco domestically, the United States has failed to lead globally. The United States is among a small minority of countries that has signed, but not ratified, the World Health Organization (WHO) Framework Convention on Tobacco Control. A tiny percentage of U.S. funding for global health is dedicated to international tobacco control. U.S. trade policy has supported and enabled the industry to expand tobacco use overseas. In this Commentary, we argue for robust U.S. engagement in global tobacco control, first explaining why it is in the national interest of the United States and then suggesting a comprehensive strategy for supporting tobacco control in low- and middle-income countries