Notes on Optimal Growth, Climate Change Calamities, Adaptation and Mitigation

A strategy of inclusion of adaptation and mitigation expenses in a model of optimal growth under threat of climate change calamities is discussed in these exploratory notes. Calamity is the result of a shock that reduces the utility level (even to extinction forever) and/or triggers a fundamental change of the economic structure. Mitigation expenses reduce the long-run probability of a calamity or the speed of convergence to it; adaptation expenses help to improve the standard of living after the calamity. The willingness to contribute to those expenses and the effects on the long-run capital stock of the economy depend on perceptions on how they will modify the law of evolution of probabilities of the shock and the standard of living after the shock. The choice between a clean technology and one that increases GHG emissions is also discussed.Climate Change, Growth, Adaptation, Mitigation

Saddlepoint Dynamics with an Endogenous Root of Convergence

This paper reconsiders local stability in the saddlepoint sense. Market time and the root of convergence are determined endogenously using partial differential equations; consequently, there is not need of the resort to any deus-ex-machina dynamics to justify an initial jump in one of the economic variables. It is shown that the regions of stability are wider than those currently admitted and that, in some cases, there is a justification for the theoretical ambiguity regarding which variable is supposed to jump. Two examples (sluggish adjustment of salaries and exchange rate dynamics) are used to illustrate the methodology.

“A Note on Access Pricing, Role Exchangeability and Incentives to Invest”

The traditional Ramsey pricing and the Efficient Component Pricing Rule for access charges to a facility are modified in this paper, taking into account the constraint that profits per unit of investment must be the same between entrants and the incumbent (a general equilibrium requirement). It is shown that the required modifications are applicable even when the sustainability constraint is not operative. If this new condition is not satisfied, the incumbent will have an incentive to postpone the construction of the critical facility.Access Pricing; Exchangeability; Incentives to Invest

Cosmological Information in the Intrinsic Alignments of Luminous Red Galaxies

The intrinsic alignments of galaxies are usually regarded as a contaminant to weak gravitational lensing observables. The alignment of Luminous Red Galaxies, detected unambiguously in observations from the Sloan Digital Sky Survey, can be reproduced by the linear tidal alignment model of Catelan, Kamionkowski & Blandford (2001) on large scales. In this work, we explore the cosmological information encoded in the intrinsic alignments of red galaxies. We make forecasts for the ability of current and future spectroscopic surveys to constrain local primordial non-Gaussianity and Baryon Acoustic Oscillations (BAO) in the cross-correlation function of intrinsic alignments and the galaxy density field. For the Baryon Oscillation Spectroscopic Survey, we find that the BAO signal in the intrinsic alignments is marginally significant with a signal-to-noise ratio of 1.8 and 2.2 with the current LOWZ and CMASS samples of galaxies, respectively, and increasing to 2.3 and 2.7 once the survey is completed. For the Dark Energy Spectroscopic Instrument and for a spectroscopic survey following the EUCLID redshift selection function, we find signal-to-noise ratios of 12 and 15, respectively. Local type primordial non-Gaussianity, parametrized by fNL = 10, is only marginally significant in the intrinsic alignments signal with signal-to-noise ratios < 2 for the three surveys considered.Comment: 20 pages, 13 figures, version accepted to JCA

Climate Change - A Research Agenda for Latin America and the Caribbean

The objective of this research agenda is to outline the issues that need to be investigated in order to produce an informed assessment of what strategies and policies Latin America and its international organizations should pursue with respect to climate change. This report makes the three following potential contributions: i) identifying actions that could be valuable but have not been highlighted; ii) advising on actions that could be ineffective and costly, given limited resources; and iii) recommending an evaluation of what elements require further analysis before objectives are translated into action. After introducing the issues involved, the report presents a simplified model to help explain the interaction of climate change with the economy. The discussion then turns to several of the most important relevant issues in terms of the model. Finally, individual items are discussed in order to construct an agenda.Climate change, Mitigation, Adaptation, Latin America and the Caribbean

The Needs of the Poor in Infraestructure Privatization. The Role of Universal Service Obligations. The Case of Argentina

El cambio estructural derivado de la privatización y regulación puede inducir una reconsideración de las regulaciones definidas al momento de iniciar el proceso privatizador. El cambio en la organización vertical del mercado y los tecnológicos, entre otros, cambian las reglas de formación de precios y de asignación de recursos. Las características d ela distribución personal y factorial del ingreso y la estructura social son también datos que influencian el diseño tarifario y la especificación de los planes de inversión necesarios así como la definición de las obligaciones de provisión de carácter social por parte de los prestadores. En general, las obligaciones sociales se refieren a los requerimientos de provisión de un conjunto de servicios bajo ciertos términos y condiciones los cuales en muchos casos en forma de transacciones involuntarias.Privatization; regulatory

Universal service obligations in utility concession contracts and the needs of the poor in Argentina's privatization

The authors summarize the main lessons emerging from Argentina's experience, including universal service obligations in concession contracts. They discuss free-riding risks, moral hazard problems, and other issues that arise when social concerns are delegated to private operators. After reporting on Argentina's experience, the authors suggest some guidelines: 1) Anticipate interjurisdictional externalities. Users'mobility makes targeting service obligations difficult. 2) Minimize the risks imposed by elusive demand. In providing new services, a gradual policy may work better than a"shock". 3) Realize that unemployment leads to delinquency and lower expected tariffs. Elasticity of fixed and usage charges is important. 4) Deal with the fact that the poor have limited access to credit. Ultimately, plans that included credit for the payment of infrastructure charges were not that successful. 5) Coordinate regulatory, employment, and social policy. One successful plan to provide universal service involved employing workers from poor families in infrastructure extension works. 6) Beware of the latent opportunism of users who benefit from special programs. Special treatment of a sector may encourage free-riding (for example, pensioners overused the telephone until a limit was placed on the number of subsidized phone calls they could make). 7) Fixed allocations for payment of services do not ensure that universal service obligations will be met. How do you deal with the problem that many pensioners do not pay their bills? 8) anticipate that operators will have more information than regulators do. If companies exaggerate supply costs in remote areas, direct interaction with poor users there may lead to the selection of more cost-effective technologies. 9)"Tailored"programs are often much more effective than standardized programs. They are clearly more expensive but, when demand-driven, are also more effective.Payment Systems&Infrastructure,Economic Theory&Research,Enterprise Development&Reform,Decentralization,Environmental Economics&Policies,Governance Indicators,Health Economics&Finance,Consumption,Environmental Economics&Policies,Economic Theory&Research

Trade Balance Constraints and Optimal Regulation

We investigate the interactions between optimal regulation and external credit constraints. When part of a regulated ¯rm is owned by foreign investors, a credit-constrained country who wants to send pro¯ts abroad has to generate enough surplus in the trade account in order to compensate capital out°ows. We show that the credit constraint translates into a constraint of maximum profits for the regulated firm. Overall e±ciency in the regulated sector is reduced to maintain incentive compatibility. A flexible exchange rate helps relaxing the credit constraint. E±ciency is higher than with a fixed exchange rate, but still lower than without credit constraints.Optimal regulation, Credit constraints, International trade

“On the Marginal Cost of Public Funds for Argentina: CGE Evaluation and Sensitivity to Regulatory Regimes”

We estimate the Marginal Cost of Public Funds for Argentina using a computable general equilibrium (CGE) model, assessing the sensitivity of the results to the existence of alternative regulatory regimes (Price-Cap and Cost-Plus) for public utilities subject to regulation. Although the estimates are in the range of international studies, we find that the results are sensitive to the regulatory regime, to the presence of exempted goods, the existence of unemployment, the value of the elasticity of labor supply, as well as to the degree of capital mobility, between sectors and internationally.computable general equilibrium; Public Funds; Marginal Cost

Trade balance constraints and optimal regulation

In this paper we develop a model to understand the interactions between optimal regulation and external credit constraints. If a big proportion of the regulated sector is owned by foreign investors, a credit-constrained country who wants to send profits abroad has to generate enough surplus in the trade account in order to compensate capital outflows. This may be a real problem in developing countries, in which regulated sectors are big and foreign ownership is very important. We show that the credit constraint translates into a constraint of maximum profits for the regulated firm. As a consequence, overall efficiency in the regulated sector is reduced to maintain incentive compatibility. With a flexible exchange rate, devaluation is an additional instrument to relax the credit constraint, but the country is not in general willing to relax it completely. Efficiency is higher than with a fixed exchange rate, but it’s still lower than without credit constraints.Optimal regulation; Credit constraint; Trade