Franz Wirl

The economics of conservation programs

1. Introduction. 2. Economic Analysis of Energy Conservation. 3. The Normative Case for Demand-Side Conservation. 4. Least Cost Planning. 5. Incentives to the Utility. 6. Incentives for Consumers. 7. Asymmetric Information and Strategic Consumer Reactions. 8. Optimal Conservation Incentives Under Asymmetric Information. 9. Rate-Of-Return Regulation and Incentives. 10. Efficiency of DSM and Positive Explanations. 11. Summary and Concluding Remarks. 12. References.

Limit cycles in intertemporal adjustment models: Theory and applications

This paper starts from well-behaved (i.e., concave) one-state-variable optimal control models. The crucial feature is that indigenous growth is present. The replacement of the control by an adjustment process and presumably penalizing these adjustments may convert stable (and only stable) fixed point equilibria into limit cycles. Indeed, given positive growth and proper externalities (such that discounting exceeds growth), one can generate stable limit cycles with ease, e.g., for a separable framework. Examples from such diverse fields as renewable resources, optimal saving and public choice highlight the economic applicability.

Dynamic voluntary provision of public goods: Extension to nonlinear strategies

Abstract Fershtman and Nitzan (Dynamic voluntary provision of public goods, European Economic Review 35, 1057–1067, 1991) propose that dynamic considerations inherent to Markov-perfect strategies lower the ultimate private provision of public goods over and above the static and open loop shortfall. This note, using nonlinear strategies, proves that this finding hinges upon ‘linearity’ rather than on the Markov-requirement.

Investment under uncertainty: calculating the value function when the Bellman equation cannot be solved analytically

The treatment of real investments parallel to financial options if an investment is irreversible and facing uncertainty is a major insight of modern investment theory well expounded in the book Investment under Uncertainty by Dixit and Pindyck. The purpose of this paper is to draw attention to the fact that many problems in managerial decision making imply Bellman equations that cannot be solved analytically and to the difficulties that arise when approximating the required value function numerically. This is so because the value function is the saddlepoint path from the entire family of solution curves satisfying the differential equation. The paper uses a simple machine replacement and maintenance framework to highlight these difficulties (for shooting as well as for finite difference methods). On the constructive side, the paper suggests and tests a properly modified projection algorithm extending the proposal in Judd (J. Econ. Theory 58 (1992) 410). This fast algorithm proves amendable to economic and stochastic control problems (which one cannot say of the finite difference method).

Technological efficiency and the demand for energy (road transport)

This paper reconsiders how far fuel efficiency, induced by technological progress and presumably by high energy prices, affects energy demand. This investigation is motivated by one of the most important phenomenon of recent energy demand developments- apparent asymmetry with respect to energy prices.

Sustainable growth, renewable resources and pollution: Thresholds and cycles

Abstract Ayong Le Kama (J. Econ. Dyn. Control 25 (2001) 1911) combines within an interesting model optimal saving (a la Ramsey) with optimal intertemporal renewable resource use a la Berck (J. Environ. Econ. Manage. 11 (1981) 101). This note draws attention to two possible outcomes—thresholds and limit cycles—that are overlooked in Ayong Le Kama (but also in other recent works) and that are quite important in this context.

Cyclical strategies in two-dimensional optimal control models: necessary conditions and existence

This paper derives necessary conditions such that cyclical policies may be optimal in concave, two state variable (economic) control problems. These conditions identify four different routes. One major implication is that two of these four conditions may be met by separable models. This possibility has been overlooked so far. Therefore, even separable and structurally very simple models may be characterized by optimal cyclical policies. Indeed, it will be shown that stable limit cycles exist for concave and separable control problems.

Energy demand and consumer price expectations : An empirical investigation of the consequences from the recent oil price collapse

Abstract Energy demand, and in particular the demand for liquid fuels is only moderately growing despite the dramatic price reduction since the beginning of 1986. Different reasons are conceivable to explain this observation, e.g., irreversibility of technological progress, sluggish behaviour due to substantial adjustment costs and the expectation of another price increase in the near future. This paper addresses the last two points, in so far as adjustment costs and price expectations may explain the current market situation. The theoretical discussion confirms that the anticipation of future price increases dampens the current rate of demand increases and implies demand reductions prior to the actual price increase. However, the empirical application (transport sector) indicates that expectations (of another price increase in the future) may at best explain only a small fraction of the observed asymmetrical demand behaviour.

The dynamics of lobbying — A differential game

This paper presents a dynamic model on lobbying. The interactions between two competing lobbies, who attempt to influence regulations and legislation, are modelled as a differential game. We consider for this game first a time consistent and then a subgame perfect equilibrium (in linear Markov strategies). The subgame perfect equilibrium lowers considerably lobbying activity and expenses. This provides a partial explanation of the puzzle that rent-seeking expenses are often small compared with the prize sought.

The ramsey model revisited: The optimality of cyclical consumption and growth

This paper reconsiders the familiar Ramsey model of optimal saving. This model is modified with two respects: direct spillovers (positive or negative) of capital on utility and penalties for changes of consumption. It will be shown that these two modifications may substantially change the stability properties of an optimal programme if capital provides utility directly (in addition to indirectly through production). More precisely, complex strategies such as (stable) limit cycles or even unstable policies may be optimal. Adjustment costs must be sufficiently high in order to obtain stable limit cycles (or even exploding spirals). This is quite surprising because large adjustment costs are expected to smooth intertemporal strategies.