How Will Energy Demand Develop in the Developing World?

Most of the medium-run growth in energy demand is forecast to come from the developing world, which consumed more total units of energy than the developed world in 2007. We argue that the main driver of the growth is likely to be increased incomes among the poor and near-poor. We document that as households come out of poverty and join the middle class, they acquire appliances, such as refrigerators, and vehicles for the first time. These new goods require energy to use and energy to manufacture. The current forecasts for energy demand in the developing world may be understated because they do not accurately capture the dramatic increase in demand associated with poverty reduction.

Essays on Contracting: Explicit Managerial Contracts and Implict Relational Influence Contracts

Contracts are an economic tool used to arrange transactions which are not tradable in simple spot markets. This thesis focuses on the implications of different kinds of contracts to understand behavior in complicated interactions. The first part of this thesis focuses on explicit formal contracts that provide non-linear payoffs and examines theoretically and empirically the implications for effort and risk-taking. The second part of this thesis focuses in contrast on implicit contracts. Starting from a theoretical perspective about how implicit contracts for influence buying might work in a setting that precludes explicit contracts. This helps explains empirical puzzles as well as has new predictions. I then show empirical evidence consistent with the predictions. In the first part, I explore managerial incentive contracts. Managerial incentives induce risk-taking as well as effort. Theoretical research has long considered risk-taking a potential side effect of incentives, but empirical investigation is limited. This thesis first develops nuanced predictions about how contracts in use in many industries induce risk-taking and effort. The contracts considered match closely those used in real-world contracts. The thesis then uses exogenous variation in hedge fund manager's incentives, one of the settings where these contracts are used, to examine both performance and risk-taking. I find that, consistent with theory, being farther below a key incentive threshold increases risk-taking and decreases performance. On average, a manager's risk-taking increases 50 percent and their performance falls 2.1 percentage points when he is below the incentive threshold. I also show, consistent with the theoretical predictions, risk-taking behavior is non-monotonic; very distant managers take less risk and perform better than less distant managers. Further, I examine the role of organizational features in impacting the responsiveness to explicit incentives and the mechanisms managers use to increase risk. My results highlight the importance of risk-taking in response to incentives designed to induce effort and inform empirical research, contract design, practitioners, and policy makers. The results also show that moral hazard, not just selection, is an important determination of manager performance. In the second part, I explore contracts for influence buying. Existing empirical evidence that finds very high actual or potential return to some campaign contributions and wonders, if contributions buy influence, why more exchange does not occur. Other empirical work has found consistent long-term relationships of contributions from interest groups to politicians. Yet, models of influence buying have treated the exchange as a simple spot transaction. This paper develops a formal model of relational influence buying between a firm and a politician where campaign contributions are exchanged for policy favors in a self-enforcing contract. This contract provides several insights. First, not all favors that have positive joint surplus to the firm and politician are contractible. Second, the model predicts that horizons of politicians will reduce the ability to raise funds. Third, the model provides empirical predictions for when firms should lobby themselves or outsource and on the structure of legislation. The first can explain why more, apparently valuable, trade does not occur. I find evidence consistent with the horizon effects from US Congress people's age and term limits in US state legislatures. The third insight speaks both to potential regulatory implications and implications for managers' influence activities. Finally, the insights from the model suggest empirical tools to detect influence buying without directly observing the favors

How Will Energy Demand Develop in the Developing World?

Over the next 25 to 30 years, nearly all of the growth in energy demand, fossil fuel use, associated local pollution, and greenhouse gas emissions is forecast to come from the developing world. This paper argues that the world's poor and near-poor will play a major role in driving medium-run growth in energy consumption. As the world economy expands and poor households' incomes rise, they are likely to get connected to the electricity grid, gain access to good roads, and purchase energy-using assets like appliances and vehicles for the first time. We argue that the current forecasts for energy demand in the developing world may be understated because they do not accurately capture growth in demand along the extensive margin, as low-income households buy their first durable appliances and vehicles. Within a country, the adoption of energy-using assets typically follows an S-shaped pattern: among the very poor, we see little increase in the number of households owning refrigerators, vehicles, air conditioners, and other assets as incomes go up; above a first threshold income level, we see rapid increases of ownership with income; and above a second threshold, increases in ownership level off. A large share of the world's population has yet to go through the first transition, suggesting there is likely to be a large increase in the demand for energy in the coming years.