CER-ETH Research Seminar, Winter Term 2006/07

• Monday, 5:15 pm to 7:00 pm
  ETH Zurich, Room ZUE G1 (Zürichbergstr. 18)

• Everyone who is interested is cordially invited!

• If you would like to receive our weekly invitation via e-mail, or if you have any other question, please send an e-mail to Karen Pittel.

Aart de Zeeuw: Dynamic Effects on the Stability of International Environmental Agreements

In terms of the number of signatories, one observes both large and small international environmental agreements. The theoretical literature, based on game theory, discusses different concepts and mechanisms for the stability of coalitions. It has reached the conclusion that, under farsightedness, both large and small stable coalitions can occur. However, adjustment processes to lower emission levels take time. This paper shows that if these adjustment processes are integrated with the behavioural reaction patterns of the dynamic game, still large and small stable coalitions can occur, but the size now depends on the relative costs of abatement and emission levels. The good news is that large coalitions can be sustained, but the bad news is that this is not always the case and depends on the characteristics of the problem. The challenge remains to find mechanisms that always sustain large coalitions. Investments in green technology may be such a mechanism.

Frank Krysiak: Risk and Sustainability: Defining and Analyzing Sustainable Development under Preference and Outcome Uncertainty

Sustainability is usually analyzed in a full information setting. But both the future outcomes of present actions and the preferences of future individuals are uncertain. In this paper, we analyze a risk-based criterion of sustainability in a simple two-generation setup that accounts for these uncertainties. We derive some general properties of this criterion and use them to characterize the trade-off between sustainability and efficiency.
Thereby we show that diversifying actions improves both their sustainability and the probability of achieving efficiency. This result provides a link between sustainability and portfolio theory. For a special case, we show that actions that achieve the maximal probability of efficiency for a given level of sustainability lie on the efficient frontier commonly used in finance. In an example, we relate our analysis to the literature on weak vs. strong sustainability and show that due to uncertainty, simple aggregative sustainability concepts, like weak sustainability, become untenable even for perfect substitution possibilities.

Olli Tahvonen: Optimal Harvesting of Age-Structured Fish Populations

Fishery economic research is strongly based on describing fish populations as biomass. Optimization models that include population ge-structure are incompletely understood. This study formulates an optimization model for harvesting an age-structured fish population with endogenous recruitment. The model may be linear or nonlinear in effort and yield. Fishing is assumed to take place at the middle of each period and fishing gear is nonselective. The population data is for menhaden fisheries with eight age-classes. The results show that constant escapement is never optimal. Optimal yield depends nonlinearly on the age-structure and may even be a decreasing function of the size of the youngest age classes. With a wide range of parameter values a transition toward
smooth sustainable fishing is optimal, although limit cycles and pulse fishing may also yield the highest economic outcome.

Herman Vollebergh: Technology adoption subsidies: an economic experiment with students and managers

We evaluate the impact of technology adoption subsidies on investment behavior in an individual choice experiment. Subjects are confronted with an intertemporal decision problem in which they have to decide whether or not to search for, and possibly adopt, a new technology. Technologies differ in their purchasing price as well as in the long run benefits (cost savings) they embody. We examine the effect of introducing a small subsidy on the more expensive technologies (i.e., those with higher cost savings). The subsidy is small in the sense that it does not make purchasing these technologies profitable. Our results indicate that nevertheless the subsidy is highly effective in changing investor’s behavior. Search is often directed toward the subsidized technologies and they are adopted at a much higher rate. Remarkably, this holds for the sessions in which the subjects were undergraduate students, as well as for those in which the subjects were professional managers, experienced in making investment decisions. We speculate that the result is driven by the positive connotation (affect) that the concept ’subsidy’ invokes in people, whether layman or professional.

Erwin Bulte: The Origins of Governments: From Amorphy to Anarchy and Hierarchy

We analyze development trajectories of early civilizations where population size and technology are endogenous, and derive conditions under which such societies optimally "switch" from anarchy to hierarchy - when it is optimal to elect and support a ruler. The ruler provides an efficient level of law and order, but creams off part of society's surplus for his own consumption. Switching to hierarchy occurs if the state of technology exceeds a threshold value, but societies may also be "trapped" at lower levels of technology - perpetuating conditions of anarchy. We present empirical evidence based on the Standard Cross Cultural Sample that support the model's main predictions.

Frank Schweitzer: Empirics and Models of Firm Networks

Many investigations on the growth of companies focus on the empirical distribution of growth rates obtained from large data sets and on stochastic growth models of independent companies. We extend this perspective by focusing on the network of non-price interactions of firms at different levels: (a) in ownership networks firms interact via direct investments in other companies, (b) in production and credit networks failures in some firms may propagate and affect far-distant companies, (c) in innovation networks, firms influence the growth of other companies via the transfer of knowledge. In the different examples, we are interested in the interplay between the interaction of firms at the micro-level and the emergent properties characterizing the whole system (e.g. distribution of firm sizes, productivity dynamics, GDP dynamics).