Frank C. Krysiak

Production, consumption, and general equilibrium with physical constraints

Abstract This paper analyzes the consequences of integrating the conservation laws of mass and energy into the microeconomic models of production, consumption, and general equilibrium. We show that abstract models and especially general equilibrium theory are consistent with these physical constraints, but most applied and environmental economic models are not. We analyze the consequences of physical conservation laws for substitution possibilities and show that these constraints limit the number of independent substitution processes but not the value of the substitution elasticities. Finally, we propose a method for integrating physical constraints into static microeconomic models with a minimum of changes.

The demand side in economic models of energy markets: the challenge of representing consumer behavior

Energy models play an increasing role in the ongoing energy transition processes either as tools for forecasting potential developments or for assessments of policy and market design options. In recent years these models have increased in scope and scale and provide a reasonable representation of the energy supply side, technological aspects and general macroeconomic interactions. However, the representation of the demand side and consumer behavior has remained rather simplistic. The objective of this paper is twofold. First, we review existing large scale energy model approaches, namely bottom-up and top-down models, with respect to their demand side representation. Second, we identify gaps in existing approaches and draft potential pathways to account for a more detailed demand side and behavior representation in energy modeling.

Optimal containment and policy differentiation under unilateral climate policy

Without a broad international agreement, climate policy is less effective, owing to carbon leakage. We investigate whether this negative effect can be addressed by partially containing the policy’s effects to intermediate goods sectors, such as electricity or transportation services. We use a three‐sector model to study a policy that taxes emissions caused by intermediate goods production while subsidizing the intermediate good. We characterize the optimal containment policy for combating carbon leakage and show that it complements the concept of policy differentiation.Sans un accord international general, une politique climatique est moins efficace a cause des emissions additionnelles engendrees dans des pays moins stricts (carbon leakage). On examine si cet effet negatif peut etre neutralise en confinant les effets de la politique aux secteurs de biens intermediaires, comme l’electricite ou les services de transport. On utilise un modele a trois secteurs pour etudier une politique qui taxe les emissions causees par la production de biens intermediaires tout en subventionnant le bien intermediaire. On definit la politique de confinement optimal pour combattre cet effet negatif (carbon leakage) et on montre qu’elle est complementaire au concept de differentiation de politiques.

Technological Diversity and Cost Uncertainty

Abstract In many industries, different technologies are used simultaneously for the production of a homogeneous good. Such diversification is socially beneficial, because it reduces the transmission of factor price volatility, like oil-price shocks, to consumer prices. Therefore, many countries have implemented policies aimed at increasing technological diversification. The question is whether such policies are necessary. We use a two-stage investment model to address this question in the setting of perfect competition and of a monopoly. We show that factor price uncertainty leads to diversification, if capital is not too expensive, and that this diversification is due to each firm investing in a diversified technology portfolio. An important implication of this form of diversification is that technological diversity is socially optimal, even in the case of a monopoly. Thus policy intervention is unnecessary and might even be detrimental.

Optimal Containment and Policy Differentiation Under Unilateral Climate Policy - Confinement Optimal Et Différentiation Des Politiques Quand Il Y a Politique Climatique Unilatérale

Without a broad international agreement, climate policy is less effective, owing to carbon leakage. We investigate whether this negative effect can be addressed by partially containing the policy’s effects to intermediate goods sectors, such as electricity or transportation services. We use a three‐sector model to study a policy that taxes emissions caused by intermediate goods production while subsidizing the intermediate good. We characterize the optimal containment policy for combating carbon leakage and show that it complements the concept of policy differentiation.Sans un accord international general, une politique climatique est moins efficace a cause des emissions additionnelles engendrees dans des pays moins stricts (carbon leakage). On examine si cet effet negatif peut etre neutralise en confinant les effets de la politique aux secteurs de biens intermediaires, comme l’electricite ou les services de transport. On utilise un modele a trois secteurs pour etudier une politique qui taxe les emissions causees par la production de biens intermediaires tout en subventionnant le bien intermediaire. On definit la politique de confinement optimal pour combattre cet effet negatif (carbon leakage) et on montre qu’elle est complementaire au concept de differentiation de politiques.