Olav Bjerkholt

Certainty Equivalence Procedures in Decision-Making Under Uncertainty: An Empirical Application

Publisher Summary This chapter discusses the certainty equivalence procedure in decision making under uncertainty. The application of certainty equivalence procedures is a useful method for simplifying a decision problem involving uncertainty. In the theory of economic policy and planning, certainty equivalence procedures have mainly been elaborated in the case of a quadratic objective function combined with a linear structural model. The idea is to formulate a procedure for optimal decision-making under uncertainty, which is similar to the one that would be valid in the case of full certainty by permitting an appropriate adjustment of the parameters of the objective function. Apart from the well-known linear-quadratic case, it is not easy to obtain certainty equivalence procedures; however, one may obtain parametric certainty equivalence where the parameters of the objective function are adjusted in a prescribed way to take uncertainty into account.

Certainty Equivalence Procedures in the Macroeconomic Planning of an Oil Economy

The theme of this paper is how to cope with the macroeconomic exposure to risk in the Norwegian economy entailed by the increased reliance upon the extraction of petroleum resources. A framework for long-term macroeconomic planning based on optimal management of national wealth under uncertainty of future oil price and rates of return on non-oil assets is suggested, and a formal optimization model based on dynamic programming is presented. The model is solved under simplified assumptions and some properties of the solution are presented. The last part of the paper is devoted to numerical explorations in applying certainty equvalence procedures in optimizing the consumption path and capital accumulation.

Uncertainty in hydroelectric power supply

Abstract This paper discusses the dimensioning and capacity utilization of a hydroelectric power system when uncertainty in supply and demand is taken explicity into consideration. It is shown how the optimal sales of firm power depend on properties of the long-term and short-term demand curves. A long-run marginal cost criterion is derived, which shows that the long-run marginal cost should be equal to the expected price in the short-term market. Uncertainties in supply as well as demand will, under reasonable assumptions, reinforce each other with respect to their implications for the excess capacity in the hydro power system.

The Use of the MSG-Model in Preparing a “Perspective Analysis 1980–2000” for the Norwegian Economy

Publisher Summary This chapter describes the use of multi-sectoral growth model, or the so-called MSG-model in preparing a “Perspective Analysis 1980–2000” for the Norwegian economy. The MSG-model was first used for national economic planning purposes in the preparation of a supplement to the Long-Term Program. The supplement contained a projection of the Norwegian economy toward 1990. The Perspective Analysis is somewhat different from the Long-Term Program supplements, and it shares with them the reliance upon the MSG-model as the basic tool of analysis. While the overall development of an economy can be considered as the result of interplay among economic, social, and political factors, available macroeconomic models seldom model more than the interrelations among a restricted set of economic variables. The interpretation of the results derived from the model depends upon a corroboration that the institutional support for the policies needed to implement the solution exists. Model analyses can often give an exaggerated impression of precision. The relations of the model, especially those depicting production, are intended to represent long-term possibilities; however, estimates based on time series may be unduly influenced by shifting short-term possibilities. To use a large model like MSG for projections is a very sophisticated method compared to trend extrapolation.

The Western European gas market: deregulation and supply competition

Over a period of 20 years natural gas has become one of the major sources of energy supply for European households, business and utilities. The overall share of natural gas in the energy use in Europe has increased from somewhat above 3% in 1966 to just over 15% in 1986. Whether this expansion should be considered as fast or slow is a contested issue. According to critical observers such as, for example, Odell (1988) and Adelmanet al.(1986), the expansion has been far too slow as a combined result of unrealistic pricing policies of the producing companies, monopolistic practices in transmission and distribution, misperception of the natural gas supply situation in Europe and various institutional constraints.

Conversion: Global, National and Local Effects. A Case Study of Norway

Gleditsch, N. P., Bjerkholt, O. & Cappelen, Å. Conversion: Global, National and Local Effects. A Case Study of Norway. Cooperation and Conflict, XVIII, 1983, 179-195. A number of UN studies have linked the two objectives of disarmament and devel opment. A major recent UN research program, directed by a UN Group of Govern mental Experts, examined how resources may be diverted from the arms race to increased development transfers to the Third World. This article is a product of one of the projects commissioned by the UN group. It is an analysis of aggregate national economic effects of conversion in Norway for three disarmament scenarios and five policy alternatives for increased transfers to developing countries. The adjustment problems are found to be relatively minor, and it is shown how a simple program of domestic countermeasures can compensate for any loss of employment or reduction in the national product. The consequences for Norway of global conversion are briefly examined, using the World Model of Leontief et al. Assuming that the global conversion process can be achieved without a loss in employment in the industrialized countries, the net effect for Norway of global conversion is found to be positive. Some preliminary data are given on local effects of conversion in Norway. These effects are potentially more serious, with military employment in some municipalities probably running as high as 20%. Such local effects might become obstacles to a smooth conversion, but this will also depend upon the overall employment situation.

Conversion: Global, National and Local Effects. A Case Study of Norway*

Publisher Summary This chapter presents the study on Norway that is primarily concerned with the national economic effects of Norwegian disarmament and increased transfers to developing countries. Norway has no recent history of colonial expansion and thus, its development aid has no historical basis in colonial ties and practices. It may not be intuitively obvious that a shift in expenditure from armaments to commodities for development transfers implies a net result of less employment. An important part of the explanation is the labor intensiveness of military spending. Various domestic countermeasures may be suggested to compensate for the employment-reducing effects of pure conversion. The results of the various conversion scenarios could be interpreted as the outcome of unilateral Norwegian political decisions or as the result for Norway of a multinational or even worldwide agreement on conversion of military expenditures. The World Model was originally developed to study international development policies in connection with the Second United Nations Development Decade.

The options for independent oil-exporting countries in the 1990s

When OPEC was founded in 1960 the main aim of the organization was to secure stability in oil prices. OPEC was not able to exert a controlling influence on the world oil market until more than a decade later. It may seem paradoxical that stability in the oil price and in oil earnings has been much lower after OPEC achieved its supreme position than before, but then it was not only a question of stability, the real issue was the right to acquire the rent value of the vast low-cost OPEC oil resources.