nep-ene New Economics Papers
on Energy Economics
Issue of 2012‒10‒20
twenty-two papers chosen by
Roger Fouquet
Basque Climate Change Centre, Bilbao, Spain

  1. Where is Australian Power headed in 2035? By Lynette Molyneaux; Craig Froome; Liam Wagner
  2. Electricity Market Integration Global Trends and Implications for the EAS Region By Yanrui Wu
  3. Spatial and Temporal Heterogeneity of Marginal Emissions: Implications for Electric Cars and Other Electricity-Shifting Policies By Joshua S. Graff Zivin; Matthew Kotchen; Erin T. Mansur
  4. Distributed Learning in Hierarchical Networks By Hélène Le Cadre; Bedo Jean-Sébastien
  5. Energy-Saving Technical Change By John Hassler; Per Krusell; Conny Olovsson
  6. Can the change in the composition of the US GDP explain the Great Moderation? A test via oil price shocks By Maravalle, Alessandro
  7. Crude Oil Price Shocks and Stock Returns: Evidence from Turkish Stock Market under Global Liquidity Conditions By Berk, Istemi; Aydogan, Berna
  8. Systemic risk in energy derivative markets: a graph theory analysis By Delphine Lautier; Franck Raynaud
  9. Economics of Biofuels: An Overview of Policies, Impacts and Prospects By Moschini, GianCarlo; Cui, Jingbo; Lapan, Harvey
  10. The Value to the Environmental Movement of the New Literature on the Economics of Happiness By Oswald, Andrew J.
  11. An analysis of physical and monetary losses of environmental health and natural resources in India By Mani, Muthukumara; Markandya, Anil; Sagar, Aarsi; Strukova, Elena
  12. Estimating Mortality and Economic Costs of Particulate Air Pollution in Developing Countries: The Case of Nigeria By N. Yaduma; M. Kortelainen; A. Wossink
  13. Are Exporters More Environmentally Friendly than Non-Exporters? Theory and Evidence By Cui, Jingbo; Lapan, Harvey; Moschini, GianCarlo
  14. Collaborative Learning is Better By Hélène Le Cadre; Bedo Jean-Sébastien
  15. Green Paradox and Directed Technical Change: The Effects of Subsidies to Clean R&D By Daubanes, Julien; Grimaud, André; Rougé, Luc
  16. Trade Structure, Transboundary Pollution and Multilateral Trade Liberalization: the Effects on Environmental Taxes and Welfare By Bruno Nkuiya
  17. The Impact of Policy Diffusion on Optimal Emission Taxes By Peter Michaelis; Thomas Ziesemer
  18. Solving the GlobalWarming Problem: Beyond Markets, Simple Mechanisms May Help! By Martimort, David; Sand-Zantman, Wilfried
  19. Macroéconomie du court terme et politique climatique : Quelques leçons d'un modèle d'offre et demande globales By Jean-François FAGNART; Marc GERMAIN
  20. Climate Change Policies in Germany: Make Ambition Pay By Caroline Klein
  21. Should global goal setting continue, and how, in the post-2015 era? By Sakiko Fukuda-Parr
  22. Alvin E. Roth and Lloyd S. Shapley: Stable allocations and the practice of market design By Committee, Nobel Prize

  1. By: Lynette Molyneaux (Department of Economics, University of Queensland); Craig Froome (Business School, University of Queensland); Liam Wagner (Department of Economics, University of Queensland)
    Abstract: Australia’s plentiful supply of coal has defined the structure of its stationary energy power generation and consumption. Economies of scale derived from large coal-fired generation have enabled the supply of affordable electricity and encouraged investment in power intensive industries. As we look to 2035, Australia’s plentiful supply of coal seam gas could dominate the future structure of its power economy but it will be subject to the vagaries of international energy price volatility and environmental costs if carbon price is applied globally. Uncertain electricity prices as a result of global energy and carbon price volatility will discourage electricity and capital intensive investment in Australia. We seek to understand the consequences of a gas-centric policy environment on Australian power in 2035.We conduct scenario analysis of the options facing the stationary energy industry by modelling the provision of electricity in 2035. In particular we seek to understand how the roll-out of large-scale solar thermal and solar photovoltaic power would alter the structure of the power economy and its ability to sustain energy-intensive industry. In order to facilitate the comparative analysis, we use a resilience index as a strategic, top down barometer of power economy performance because it allows a systematic and rational appraisal of the relative efficiency, diversity and security of power systems. Our findings provide an indicator of how energy-intensive industries will view investment in Australia over the coming decades.
    JEL: Q40
    Date: 2012–10
  2. By: Yanrui Wu (Business School, University of Western Australia)
    Abstract: Electricity market reform has been implemented in many countries and regions in the world. There is no doubt that electricity consumption continues to increase in East Asia. Electricity market integration in East Asia is thus an important component of the energy market integration (EMI) initiatives supported by the East Asian Summit (EAS) group. It is argued that an integrated East Asian electricity market would allow consumers to have access to competing suppliers within or beyond the borders and enable electricity providers in member economies to better deal with peak demand and supply security. The objectives of this study are twofold, namely, a) to present a review of the trends in regional electricity market integration and b) to draw implications for electricity market development in the EAS area. Specifically, this project will review the trends of integration in the world’s major electricity markets and analyze the experience and lessons in those markets. It will provide an examination of the electricity sectors in East Asia in terms of market development and connectivity. It will provide policy recommendations for the promotion of electricity market integration.
    Date: 2012
  3. By: Joshua S. Graff Zivin; Matthew Kotchen; Erin T. Mansur
    Abstract: In this paper, we develop a methodology for estimating marginal emissions of electricity demand that vary by location and time of day across the United States. The approach takes account of the generation mix within interconnected electricity markets and shifting load profiles throughout the day. Using data available for 2007 through 2009, with a focus on carbon dioxide (CO2), we find substantial variation among locations and times of day. Marginal emission rates are more than three times as large in the upper Midwest compared to the western United States, and within regions, rates for some hours of the day are more than twice those for others. We apply our results to an evaluation of plug-in electric vehicles (PEVs). The CO2 emissions per mile from driving PEVs are less than those from driving a hybrid car in the western United States and Texas. In the upper Midwest, however, charging during the recommended hours at night implies that PEVs generate more emissions per mile than the average car currently on the road. Underlying many of our results is a fundamental tension between electricity load management and environmental goals: the hours when electricity is the least expensive to produce tend to be the hours with the greatest emissions. In addition to PEVs, we show how our estimates are useful for evaluating the heterogeneous effects of other policies and initiatives, such as distributed solar, energy efficiency, and real-time pricing.
    JEL: H23 L94 Q5
    Date: 2012–10
  4. By: Hélène Le Cadre (LIMA - CEA, LIST, Laboratory of Information, Models and Learning - CEA : SACLAY); Bedo Jean-Sébastien (Orange/France-Télécom - Telecom Orange)
    Abstract: In this article, we propose distributed learning based approaches to study the evolution of a decentralized hierarchical system, an illustration of which is the smart grid. Smart grid management requires the control of non-renewable energy production and the inegration of renewable energies which might be highly unpredictable. Indeed, their production levels rely on uncontrolable factors such as sunshine, wind strength, etc. First, we derive optimal control strategies on the non-renewable energy productions and compare competitive learning algorithms to forecast the energy needs of the end users. Second, we introduce an online learning algorithm based on regret minimization enabling the agents to forecast the production of renewable energies. Additionally, we define organizations of the market promoting collaborative learning which generate higher performance for the whole smart grid than full competition.
    Keywords: Algorithmic Game Theory; Coalition; Distributed Learning; Regret
    Date: 2012–10–09
  5. By: John Hassler; Per Krusell; Conny Olovsson
    Abstract: We estimate an aggregate production function with constant elasticity of substitution between energy and a capital/labor composite using U.S. data. The implied measure of energy-saving technical change appears to respond strongly to the oil-price shocks in the 1970s and has a negative medium-run correlation with capital/labor-saving technical change. Our findings are suggestive of a model of directed technical change, with low short-run substitutability between energy and capital/labor but significant substitutability over longer periods through technical change. We construct such a model, calibrate it based on the historical data, and use it to discuss possibilities for the future.
    JEL: E0 O30 Q32
    Date: 2012–10
  6. By: Maravalle, Alessandro
    Abstract: The paper investigates whether the growing GDP share of the services sector can contribute to explain the great moderation in the US. We identify and analyze three oil price shocks and use a SVAR analysis to measure their economic impact on the US economy at both the aggregate and the sectoral level. We find mixed support for the explanation of the great moderation in terms of shrinking oil shock volatilities and observe that increases (decreases) in oil shock volatilities are contrasted by a weakening (strengthening) in their transmission mechanism. Across sectors, services are the least affected by any oil shock. As the contribution of services to the GDP volatility increases over time, we conclude that a composition effect contributed to moderate the conditional volatility to oil shocks of the US GDP.
    Keywords: oil price shocks, great moderation, services, structural change
    JEL: Q43 E32 C32
    Date: 2012
  7. By: Berk, Istemi (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Aydogan, Berna (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: The purpose of this study is to investigate the impacts of crude oil price variations on the Turkish stock market returns. We have employed vector autoregression (VAR) model using daily observations of Brent crude oil prices and Istanbul Stock Exchange National Index (ISE-100) returns for the period between January 2, 1990 and November 1, 2011. We have also tested the relationship between oil prices and stock market returns under global liquidity conditions by incorporating a liquidity proxy variable, Chicago Board of Exchange’s (CBOE) S&P 500 market volatility index (VIX), into the model. Variance decomposition test results suggest little empirical evidence that crude oil price shocks have been rationally evaluated in the Turkish stock market. Rather, it was global liquidity conditions that were found to account for the greatest amount of variation in stock market returns.
    Keywords: Oil Price Shocks; Stock Returns; Liquidity; VAR Model
    JEL: C58 G15 Q43 Q47
    Date: 2012–10–15
  8. By: Delphine Lautier (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine); Franck Raynaud (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine)
    Abstract: This article uses graph theory to provide novel evidence regarding market integration, a favorable condition for systemic risk to appear in. Relying on daily futures returns covering a 12-year period, we examine cross- and inter-market linkages, both within the commodity complex and between commodities and other financial assets. In such a high dimensional analysis, graph theory enables us to understand the dynamic behavior of our price system. We show that energy markets - as a whole - stand at the heart of this system. We also establish that crude oil is itself at the center of the energy complex. Further, we provide evidence that commodity markets have become more integrated over time.
    Keywords: Systemic risk; Energy; Derivative markets; High dimensional analysis; Graph theory; Minimum spanning trees.
    Date: 2012
  9. By: Moschini, GianCarlo; Cui, Jingbo; Lapan, Harvey
    Abstract: This paper provides an overview of the economics of biofuels. It starts by describing the remarkable growth of the biofuel industry over the last decade, with emphasis on developments in the United States, Brazil and the European Union, and it identifies the driving role played by some critical policies. After a brief discussion of the motivations that are commonly argued in favor of biofuels and biofuel policies, the paper presents an assessment of the impacts of biofuels from the economics perspective. In particular, the paper explains the basic analytics of biofuel mandates, reviews several existing studies that have estimated the economic impacts of biofuels, presents some insights from a specific model, and outlines an appraisal of biofuel policies and the environmental impacts of biofuels. The paper concludes with an examination of several open issues and the future prospects of biofuels.
    Keywords: biodiesel; Biofuel policies; ethanol; Greenhouse gas emissions; mandates.
    JEL: F1 H2 Q2
    Date: 2012–05–24
  10. By: Oswald, Andrew J. (University of Warwick and CAGE UK and IZA Germany)
    Abstract: Many environmentalists have not yet discovered and understood the value to them of a new research literature. That literature is the economics of happiness. It offers a potentially important tool for future policy debate. In particular, this literature offers a defensible way to calculate the costs and benefits of the true happiness value of ‘green’ variables – and to weigh those against the happiness value to people of extra income and consumption. Some of the latest research findings turn out to accord well with environmentalists’ intuitions : green variables seem to have large direct effects on human well-being; society would arguably be better to concentrate more on environmental aims and less on monetary or materialistic ones; greater consumption of things in Western society cannot be expected to make us much happier
    Date: 2012
  11. By: Mani, Muthukumara; Markandya, Anil; Sagar, Aarsi; Strukova, Elena
    Abstract: This study provides estimates of social and financial costs of environmental damage in India from three pollution damage categories: (i) urban air pollution; (ii) inadequate water supply, poor sanitation, and hygiene; and (iii) indoor air pollution. It also provides estimates based on three natural resource damage categories: (i) agricultural damage from soil salinity, water logging, and soil erosion; (ii) rangeland degradation; and (iii) deforestation. The estimates are based on a combination of Indian data from secondary sources and on the transfer of unit costs of pollution from a range of national and international studies. The study estimates the total cost of environmental degradation in India at about 3.75 trillion rupees (US$80 billion) annually, equivalent to 5.7 percent of gross domestic product in 2009, which is the reference year for most of the damage estimates. Of this total, outdoor air pollution accounts for 1.1 trillion rupees, followed by the cost of indoor air pollution at 0.9 trillion rupees, croplands degradation cost at 0.7 trillion rupees, inadequate water supply and sanitation cost at around at 0.5 trillion rupees, pasture degradation cost at 0.4 trillion rupees, and forest degradation cost at 0.1 trillion rupees.
    Keywords: Health Monitoring&Evaluation,Environmental Economics&Policies,Population Policies,Brown Issues and Health,Climate Change Mitigation and Green House Gases
    Date: 2012–10–01
  12. By: N. Yaduma; M. Kortelainen; A. Wossink
    Date: 2012
  13. By: Cui, Jingbo; Lapan, Harvey; Moschini, GianCarlo
    Abstract: This paper studies the firm-level relationship between decision to export and environmental performance. To guide the empirical work, we introduce environmental pollution and technology choice into a trade model with heterogeneous firms. The model predicts that a productive firm is more likely to adopt emission-saving technology and to export. Using facility-level criteria air emission data in the U.S. manufacturing industry, for a variety of pollutants, empirical tests are supportive of our two primary theoretical predictions. First, facility productivity is negatively correlated with emission intensity, measured by emissions per value of sales. Second, conditional on the estimated facility productivity and the facility’s exposure to environmental regulation, exporters have lower emission per value of sales than non-exporters within the same industry.
    Keywords: Clean Air Act; export; Facility-Level Pollution; Heterogeneous Firms.
    JEL: F18 Q53 Q56
    Date: 2012–10–12
  14. By: Hélène Le Cadre (LIMA - CEA, LIST, Laboratory of Information, Models and Learning - CEA : SACLAY); Bedo Jean-Sébastien (Orange/France-Télécom - Telecom Orange)
    Abstract: In this article, we focus on the identification of emerging economic organizations while agents are learning hidden individual sequences modeling renewable energy production and microgrid instantaneous needs in a decentralized hierarchical network. The network is made of 3 categories of agents: producers, providers and end users belonging to microgrids. In this uncertain context, providers are penalized in case where they cannot satisfy the entire demand of the associated microgrid. Identically, producers are penalized in case where they cannot deliver the quantity of energy booked by the providers. Service providers need to make efficient forecasts about the hidden individual sequences to optimize their decisions concerning the quantities of energy to book and the prices of the energy. We prove that there exists prices that provide to the producers a guarantee to avoid penalties. Additionally, under external regret minimization, collaborative learning through a grand coalition where the providers share their information and align their forecasts, enables them to minimize their average loss. As an illustration, we compare the convergence rates of the collaborative learning strategy with rates resulting from selfish learning based on external and internal regret minimization in a 2 producers, 3 providers network. The results confirm the theory: collaboration is better for the providers.
    Keywords: Distributed Learning; Regret; Algorithmic Game Theory; Coalition
    Date: 2012–07–07
  15. By: Daubanes, Julien; Grimaud, André; Rougé, Luc
    Abstract: The "green paradox" literature points out that environmental policies which are anticipated to become gradually more stringent over time may induce a more rapid extraction of fossil fuels, thus having a detrimental effect to the environment. The manifestation of such phenomena has been extensively studied in the case of taxes directly applied to the extraction of a polluting non-renewable resource and of subsidies applied to its non-polluting substitutes. This paper examines the effects of subsidies to "clean" R&D activities, aimed to improve the productivity of non-polluting substitutes. We borrow standard assumptions from the directed-technical-change literature to take a full account of the private incentives to perform R&D and of the patterns of complementarity/substitutability between dirty resource and clean non-resource sectors. We show that a gradual increase in relative subsidies to clean R&D activities does not have the adverse green paradox effect, which contradicts an earlier made conjecture. Instead, the presence of several R&D sectors implies arbitrages which give rise to other quite paradoxical results. However substitutable or complementary sectors are, and whatever the induced technological bias is, clean-R&D-support policies always enhance the long-run productivity of the resource and thus result in a less rapid extraction.
    Keywords: Non-renewable resources; Directed technical change; Environmental policy; Green paradox; R&D subsidies
    JEL: O32 O41 Q32
    Date: 2012–08
  16. By: Bruno Nkuiya
    Abstract: This paper considers a trade situation where the production activities of potentially heterogeneous countries generate pollution which can cross borders and harm the well-being of all the countries involved. In each of those countries the policy market levies pollution taxes on the polluting firms and a tariff on imports in order to correct that distortion. The purpose of the paper is to investigate the effect of a reduction in the tariff on equilibrium pollution taxes and welfare. The existing literature has investigated this problem for trade between two identical countries. This paper analyzes the problem in the more realistic context where countries are not necessarily identical and trade can be multilateral. It becomes possible to show what bias is introduced when those two realities are neglected. I find that a tariff reduction can actually lower output; it can also lower welfare even if pollution is purely local.
    Keywords: Trade liberalization, Pollution taxes, Transboundary pollution, Heterogeneous countries, Imperfect markets
    JEL: D43 F18 H23 Q58
    Date: 2012
  17. By: Peter Michaelis (University of Augsburg, Department of Economics); Thomas Ziesemer (University of Augsburg, Department of Economics)
    Abstract: We incorporate the process of policy diffusion (i.e. the uncoordinated dissemination of policies among countries) into a probabilistic two-country-model of strategic environmental policy. Contrary to the usual setting with simultaneous decision making we consider the impact of sequential decision making: In the first step the domestic government introduces an emission tax, in the second step policy diffusion occurs with a certain probability and in the third step the firms decide on output quantities. Within this framework we analyze how the prospect of policy diffusion, motivated by a higher damage parameter in the domestic country, influences the optimal domestic emission tax. We show that if the damage parameter in the foreign country is sufficiently high policy diffusion will occur which leads to higher tax rates and higher welfare compared to the equilibrium resulting from simultaneous decision making. Moreover, we show that an increase in the domestic tax rate also increases the probability that the foreign country adopts the tax policy.
    Keywords: strategic environmental policy, emission tax, policy diffusion, sequential decision-making
    JEL: F18 Q55 Q58
    Date: 2012–10
  18. By: Martimort, David; Sand-Zantman, Wilfried (Toulouse School of Economics (GREMAQ and IDEI))
    Abstract: This paper discusses the feasibility and performances of simple mechanisms to implement international environmental agreements in the multilateral externalities context of global warming. Asymmetric information and voluntary participation by sovereign and heterogenous countries are key constraints on the design of those agreements. Mechanisms must prevent two sorts of free-riding problems - free riding in effort provision and free riding in participation. As markets might fail to solve simultaneously those two problems, we construct instead a simple menu of options that trades off the provision of incentives for participating countries and the provision of incentives to participate.With such mechanism, all countries voluntary contribute to a fund, although at different intensities, but only the most efficient ones effectively reduce their pollution below its “business as usual” level.
    Keywords: Free-riding, environmental agreements, asymmetric information, mechanism design.
    Date: 2012–10
  19. By: Jean-François FAGNART (Facultés universitaires Saint-Louis , CEREC et UCLouvain, IRES); Marc GERMAIN (Université de Lille 3, EQUIPPE et UCLouvain, IRES)
    Abstract: Nous introduisons le concept d'empreinte carbone dans un modèle offre globale et demande globale avec formation imparfaitement concurrentielle des prix et salaires et en examinons les propriétés de l'équilibre en présence d'une politique climatique. Nous étudions deux instruments possibles de cette politique, une taxe carbone ou un quota de permis de pollution. Nous montrons qu'à court terme la politique climatique (ou son durcissement) constitue à la fois un choc d'offre globale négatif et un choc de demande globale positif. Elle provoque donc des effets inflationnistes mais a un impact ambigu sur l'activité économique, l'emploi et le chômage. Ce n'est que dans une économie avec des rigidités nominales de salaire suffisantes que la politique climatique stimulera - sous certaines conditions - l'activité à court terme. Dans tous les cas de figure, elle pèsera négativement sur les salaires réels. Nous étudions encore les interactions entre la politique climatique et les politiques macroéconomiques traditionnelles de demande (stimulus budgétaire ou monétaire) et d'offre (baisse des cotisations sociales). Les effets multiplicateurs de ces politiques sont influencés par l'existence d'une politique climatique et diffèrent selon l'instrument choisi (taxe ou permis). Nous montrons les conditions sous lesquelles une réforme combinant durcissement de la politique climatique et baisse des cotisations sociales sur le travail peut engendrer un double dividende (réduction de l'empreinte carbone, baisse du chômage), sans pénaliser les salaires réels des travailleurs. Une telle politique a toutefois des effets incertains sur le solde des finances publiques.
    Keywords: offre et demande globales, politique climatique, taxe carbone, permis de pollution aggregate demand and supply, climate policy, carbon tax, pollution permits
    JEL: E10 E60 Q58
    Date: 2012–07–31
  20. By: Caroline Klein
    Abstract: Germany reduced greenhouse gas emissions substantially but remains an important emitter. Ambitious targets for climate change mitigation have been fixed and a broad range of environmental measures are being implemented. The efficiency of these measures, as well as their coordination, should be improved though, as reaching the targets risks being costly. In particular, the early phase-out of nuclear power and the development of renewable energy sources will require high levels of investment and public financial support. Establishing a clear carbon price in all sectors of the economy and phasing out environmentally harmful subsidies would contribute to reducing the CO2 abatement cost. The generosity of feed-in tariffs also needs to be carefully monitored and adjusted tightly in line with market developments to avoid deadweight losses and excessive increases in electricity prices. In addition, in order to maintain the German leadership in green sectors and preserve future sources of growth, competition in the energy sectors should be increased and eco-innovation further developed. This Working Paper relates to the 2012 Economic Survey of Germany,<P>Politiques en matière de changement climatique en Allemagne : tirer profit d´objectifs ambitieux<BR>L’Allemagne a sensiblement réduit ses émissions de gaz à effet de serre, mais elle reste un émetteur important. Ses objectifs d’atténuation du changement climatique sont ambitieux, et elle met actuellement en oeuvre un large éventail de mesures de protection de l’environnement. Il faudrait toutefois améliorer l’efficacité de ces mesures, ainsi que leur coordination, car atteindre les objectifs visés risque d’être coûteux. En particulier, l’abandon anticipé de l’énergie nucléaire et le développement des sources d’énergie renouvelables nécessiteront des volumes considérables d’investissement et de soutien financier public. Un prix du carbone clairement défini dans tous les secteurs de l’économie et l’élimination progressive des subventions dommageables pour l’environnement contribueraient à réduire le coût de la réduction des émissions de CO2. Le système de tarifs de rachat doit également être strictement contrôlé et adapté aux évolutions du marché, pour éviter les pertes d’efficience et des hausses excessives des prix de l’électricité. De plus, afin que l’Allemagne reste à l’avant-garde dans les secteurs verts et préserve ses futures sources de croissance, il importe d’intensifier la concurrence dans le secteur de l’énergie et de développer davantage l’éco-innovation. Ce document de travail se rapporte à l’Étude économique de l’OCDE sur l’Allemagne 2012 (
    Keywords: Germany, innovation, climate change, green growth, Allemagne, innovation, changement climatique, croissance verte
    JEL: H23 O44 Q58
    Date: 2012–09–12
  21. By: Sakiko Fukuda-Parr
    Abstract: The Millennium Development Goals (MDGs) were introduced to monitor implementation of the United Nations Millennium Declaration which set out a vision for inclusive and sustainable globalization based on human rights principles. This paper critically assesses the MDG experience including their policy purpose, ethical commitments, political origins, and consequences. It proposes that post-2015 goals should be based on principles of equity, sustainability and human security and address key contemporary challenges such as climate change, unemployment, inequality and global market instability.
    Keywords: MDGs, development cooperation, poverty, equity, sustainability, security, global goals
    JEL: F42 H87 O15 O19 O20
    Date: 2012–07
  22. By: Committee, Nobel Prize (Nobel Prize Committee)
    Abstract: Economists study how societies allocate resources. Some allocation problems are solved by the price system: high wages attract workers into a particular occupation, and high energy prices induce consumers to conserve energy. In many instances, however, using the price system would encounter legal and ethical objections. Consider, for instance, the allocation of public-school places to children, or the allocation of human organs to patients who need transplants. Furthermore, there are many markets where the price system operates but the traditional assumption of perfect competition is not even approximately satisfied. In particular, many goods are indivisible and heterogeneous, whereby the market for each type of good becomes very thin. How these thin markets allocate resources depends on the institutions that govern transactions.
    Keywords: Market Design;
    JEL: C71 D02
    Date: 2012–10–15

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