Jean Pierre Ponssard

EU emissions trading and the cement sector: a spatial competition analysis

An oligopoly competition model is described and used to illustrate the potential effect of EU emissions trading and transport issues on the production decisions and profitability of cement producers in a typical western European country market. The role of geography is introduced from three viewpoints: the existence of regional markets, the fact that EU producers may operate multiple plants across these regions, and the possibility of production capacity constraints. A typical EU state is divided into a coastal region which is initially exposed to international competition, and an inland region which is initially protected. Assuming pure auctioning of EU Allowances and a range of CO2 prices up to €50/t, our model predicts a large increase of imports into the coastal region. Consequences for the inland producers include reduced attractiveness of the coastal market, as well as increased competition from coastal producers and from non-EU imports. The model includes a number of simplifications and therefore does not claim to offer definitive predictions, but our results do suggest that an increase in non-EU imports could feasibly offset more than 70% of the decrease in EU cement sector emissions. The likely impact on producer profits is considered for each region, and the advantages and disadvantages of potential mitigating policy measures are reviewed for either the EU Allowance allocation process or border adjustments on cement products.

The values of information in some nonzero sum games

The paper considers nonzero-sum games in which the players utility functions are not known with certainty. It tries to clarify the various definitions of information value in such games, provides the reader with a class of games with simple solutions, and presents experimental results corroborating the theoretical analysis.

Zero-sum sequential games with incomplete information

Repeated zero-sum two-person games of incomplete information on one side are considered. If the one-shot game is played sequentially, the informed player moving first, it is proved that the value of then-shot game is constant inn and is equal to the concavification of the game in which the informed player disregards his extra information. This is a strengthening ofAumann andMaschlers results for simultaneous games. Optimal strategies for both players are constructed explicitly.

Are Cartel Fines Optimal? Theory and Evidence from the European Union

Deterring the formation or continuation of cartels is a major objective of antitrust policy. We develop a dynamic framework to characterize the compensation and deterrence properties of fines, based on the fact that cartel stability depends on the ability to prevent deviation, which itself depends in part on fines imposed in case of detection and conviction. We show that the proper consideration of cartel dynamics plays a major role in determining optimal deterrent fines. Our results suggest that fines imposed by the European Commission in recent years meet the deterrence objective in a significant number of cases.

EU ETS, free allocations and activity level thresholds, the devil lies in the details

It is well known that discontinuous jumps or thresholds in tax or subsidies are socially inefficient, because they create incentives to make strategic behavioral changes that lead to substantial increases in private benefits. This paper investigates these distortions in the context of the EU Emissions Trading Scheme, where activity level thresholds (ALTs) were introduced in Phase 3 to reduce the overallocation of free allowances to low-activity installations. Using installation-level data, we find evidence that cement producers indeed respond to such thresholds when confronted with low demand, by strategically adjusting output to obtain more free allocation. We estimate that in 2012, ALTs induced excess cement clinker production of 6.4 Mt (5% of total EU output), and in affected regions this further distorted trade patterns and reversed carbon intensity improvements. As intended, ALTs reduced free allocation by 4%; however, a linear scheme (output-based allocation) would have achieved a 32% reduction.

Economic Analysis of the European Cement Industry

We present a methodology to assess the profitability of a capital intensive industry over a business cycle and to make projections of profitability for different investment strategies under various hypothetical scenarios for environmental and competition policies. The methodology is applied to the European cement industry over the period 2004‐2012 (Part I) and over the next 10/15 years (Part II) using publicly available data, interviews of financial analysts and industry experts.

Capacity Investment Under Demand Uncertainty: The Role of Imports in the U.S. Cement Industry

Demand uncertainty is thought to influence irreversible capacity decisions. Suppose that local demand can be sourced from domestic (rigid) production or from (flexible) imports. This paper shows that the optimal domestic capacity is either increasing or decreasing with demand uncertainty, depending on the relative level of the costs of domestic production and imports. We test this relationship with data from the U.S. cement industry, in which the difference in marginal cost between domestic production and imports varies across local U.S. markets because cement is costly to transport over land. Industry data for 1999 to 2010 are consistent with the predictions of the model. The introduction of two technologies to the production set—one rigid and one flexible—is crucial to understanding the relationship between capacity choice and uncertainty in this industry because there is no relationship between these two variables in aggregated U.S. data. Our analysis reveals that the relationship is negative in coastal districts, and significantly more positive in landlocked districts.

On the subject of non optimal play in zero sum extensive games: “The trap phenomenon”

This paper discusses the best reply to be played after a mistake is committed in a zero sum extensive game. First it is shown that the minimax strategies do not, in general, provide specific answers. Two possible criteria are proposed to narrow the set of optimal strategies. Then, a surprising feature of the selected optimal strategy may be observed: it may set the stage in advance so that, if the mistake is committed, the penalty will be maximal. This is called: the “trap phenomenon”.

Fishing for Excuses and Performance Evaluation

We study a principal–agent model in which the agent can provide ex post additional relevant information regarding his performance. In particular, he can provide a legitimate excuse, that is, evidence that a poor result is only due to factors outside his control. However, building a convincing case requires time, time that is not spent on exerting productive effort and thus generating information represents an opportunity cost. We obtain necessary and sufficient conditions for the principal to prefer a policy of adjusting ex post the performance measure for the information provided by the agent to a policy of conforming to a result-based system with no adjustments. The risk aversion and a possible limited liability of the agent play an important role in the analysis. This paper clarifies the issues associated with the so-called “excuse culture” prevailing in some organizations.