In this paper we model concession contracts between a public and a private party, under dynamic u... more In this paper we model concession contracts between a public and a private party, under dynamic uncertainty arising both from the volatility of the cash flow generated by the project and by the strategic behaviour of the two parties. Under these conditions we derive three notions of equilibrium price and apply the model to a case study for one of the most important concession contracts in Italy.
This chapter presents an overview of frontier topics of general equilibrium that are especially i... more This chapter presents an overview of frontier topics of general equilibrium that are especially important to effectively integrate the policy and project dimensions of the equilibrium analysis. Project evaluation as a new frontier for modelling implies a general view of the traditional benefit-cost calculations that researchers can now afford implementing thanks to the recent computational developments that can host more realistic assumptions about model closures. A differential representation of general equilibrium permits also to unveil the opportunity cost structure associated with alternative resource uses of both policy and project evaluations. This extension enriches the policy content of both the micro and macro level of the equilibrium analysis. It takes advantage of the fact that in a modern policy and project analysis the micro-macro link exactly aggregates from the individual to the family, community, which is often the level of feasibility and impact analysis of large projects, and society level using micro and macro behavioural models that are closely integrated.
Supporting value judgements about policies and programmes is a central task in evaluation. There ... more Supporting value judgements about policies and programmes is a central task in evaluation. There is, however, little consensus on how evaluators are to accomplish this task. The traditional cost-benefit approaches were found wanting and yet valuation as promoted by checklists or qualitative stakeholder interviews is not anchored to an economic theory and thus inspires little confidence. While no single methodology is likely to be accepted by all, recent developments in economic theory support a new interpretation. This proposed approach is a variant of social cost benefit analysis (SCBA); it retains the representation of stakeholder values while avoiding the more dogmatic, and even mechanical, underpinnings of traditional economic analysis. In this article we trace the development of this new 'options-based' approach and chart out the path for further research. It warrants, we believe, a voice in the dialogue on economic evaluation.
In this paper, we explore the effects of dynamic uncertainty on the risk management of regulated ... more In this paper, we explore the effects of dynamic uncertainty on the risk management of regulated industries and emission market. We consider as major sources of uncertainty the stochastic growth of demand for the industry output (e.g. electric energy) and the ensuing lack of information on the pollution levels of individual firms, their behavior and the behavior of the regulator. These sources of uncertainty are common in pollution permit trading as not only does the market respond to the volatility of fundamentals but also to the vagaries of the institutional structure, created by public policy and enforced through regulation. The paper shows that in the presence of strategic behavior on the part of the agents involved, even though both the level and the volatility of output increases over time, trading of permits is a highly effective instrument of risk management, since it allows the firms to pool the risks arising from the volatile environment, thereby simplifying enforcement, reducing emissions and improving resource allocation. Moreover, uncertainty plays a subtle influencing role, since on one hand it broadens the regulator's deterrent power over potential polluters, while on the other it reduces the expected value of the sanction for the individual firm.
Trade patterns, cooperation, and growth , Trade patterns, cooperation, and growth , مرکز فناوری ا... more Trade patterns, cooperation, and growth , Trade patterns, cooperation, and growth , مرکز فناوری اطلاعات و اطلاع رسانی کشاورزی
ABSTRACT This article examines the controversial problem of the choice of the social discount rat... more ABSTRACT This article examines the controversial problem of the choice of the social discount rate in development projects, by focusing on the investment required to adapt to climate change, considering the threats to food security and the needs for human and natural capital, especially for developing countries. Because climate change introduces negative trends and time increasing volatilities both in production and in consumption, social rates of discount can only be estimated within a framework of dynamic uncertainty. For this purpose, climate change can be modeled as a twin stochastic process of the geometric Brownian motion variety, affecting both consumption and productive capacity. Unlike the case of deterministic neoclassical growth, and contrary to the usual estimates for project evaluation, the stochastic nature of climate changes links the social discount rate (SDR) to volatility in two distinct and important ways. On the side of consumption and growth, the SDR is reduced by the likely negative effects of climate change (CC) on growth and food security. It also becomes dependent on the fact that the volatility of growth favors the accumulation of precautionary savings and thus reduces the rate of fall of the value of consumption over time. On the side of production capacity, the SDR is also reduced by the negative effect of CC on the productivity of capital and by the fact that the opportunity cost of the displacement of private investment under dynamic uncertainty is lowered by the value of the options to invest when more information will be available.
This paper assesses reserve management for determining optimal or minimal reserves for an oil pro... more This paper assesses reserve management for determining optimal or minimal reserves for an oil producing economy under dynamic uncertainty. Reserve benchmarks are formulated taking into consideration the amount of contingent liabilities in foreign exchange that arises during currency crises. These contingent liabilities are derived based on the analogy between holding domestic money and possessing a financial option whose payoff depends on the expected behavior of oil proceeds. When reserve accumulation has an opportunity cost in terms of capital goods, an optimum level of reserves can be established, given the capability of reserves to delay and mitigate currency crises. Alternatively, when reserves constitute the best means to accumulate country wealth, an appropriate minimal reserve level may be calculated. In this case, reserves act as an instrument of self-insurance that guarantees honoring a selected amount of foreign exchange claims at the time of a crisis. Econometric estimates for Venezuela show reasonable numerical values for counterfactual optimal and minimal reserves.
In this paper we model concession contracts between a public and a private party, under dynamic u... more In this paper we model concession contracts between a public and a private party, under dynamic uncertainty arising both from the volatility of the cash flow generated by the project and by the strategic behaviour of the two parties. Under these conditions we derive three notions of equilibrium price and apply the model to a case study for one of the most important concession contracts in Italy.
This chapter presents an overview of frontier topics of general equilibrium that are especially i... more This chapter presents an overview of frontier topics of general equilibrium that are especially important to effectively integrate the policy and project dimensions of the equilibrium analysis. Project evaluation as a new frontier for modelling implies a general view of the traditional benefit-cost calculations that researchers can now afford implementing thanks to the recent computational developments that can host more realistic assumptions about model closures. A differential representation of general equilibrium permits also to unveil the opportunity cost structure associated with alternative resource uses of both policy and project evaluations. This extension enriches the policy content of both the micro and macro level of the equilibrium analysis. It takes advantage of the fact that in a modern policy and project analysis the micro-macro link exactly aggregates from the individual to the family, community, which is often the level of feasibility and impact analysis of large projects, and society level using micro and macro behavioural models that are closely integrated.
Supporting value judgements about policies and programmes is a central task in evaluation. There ... more Supporting value judgements about policies and programmes is a central task in evaluation. There is, however, little consensus on how evaluators are to accomplish this task. The traditional cost-benefit approaches were found wanting and yet valuation as promoted by checklists or qualitative stakeholder interviews is not anchored to an economic theory and thus inspires little confidence. While no single methodology is likely to be accepted by all, recent developments in economic theory support a new interpretation. This proposed approach is a variant of social cost benefit analysis (SCBA); it retains the representation of stakeholder values while avoiding the more dogmatic, and even mechanical, underpinnings of traditional economic analysis. In this article we trace the development of this new 'options-based' approach and chart out the path for further research. It warrants, we believe, a voice in the dialogue on economic evaluation.
In this paper, we explore the effects of dynamic uncertainty on the risk management of regulated ... more In this paper, we explore the effects of dynamic uncertainty on the risk management of regulated industries and emission market. We consider as major sources of uncertainty the stochastic growth of demand for the industry output (e.g. electric energy) and the ensuing lack of information on the pollution levels of individual firms, their behavior and the behavior of the regulator. These sources of uncertainty are common in pollution permit trading as not only does the market respond to the volatility of fundamentals but also to the vagaries of the institutional structure, created by public policy and enforced through regulation. The paper shows that in the presence of strategic behavior on the part of the agents involved, even though both the level and the volatility of output increases over time, trading of permits is a highly effective instrument of risk management, since it allows the firms to pool the risks arising from the volatile environment, thereby simplifying enforcement, reducing emissions and improving resource allocation. Moreover, uncertainty plays a subtle influencing role, since on one hand it broadens the regulator's deterrent power over potential polluters, while on the other it reduces the expected value of the sanction for the individual firm.
Trade patterns, cooperation, and growth , Trade patterns, cooperation, and growth , مرکز فناوری ا... more Trade patterns, cooperation, and growth , Trade patterns, cooperation, and growth , مرکز فناوری اطلاعات و اطلاع رسانی کشاورزی
ABSTRACT This article examines the controversial problem of the choice of the social discount rat... more ABSTRACT This article examines the controversial problem of the choice of the social discount rate in development projects, by focusing on the investment required to adapt to climate change, considering the threats to food security and the needs for human and natural capital, especially for developing countries. Because climate change introduces negative trends and time increasing volatilities both in production and in consumption, social rates of discount can only be estimated within a framework of dynamic uncertainty. For this purpose, climate change can be modeled as a twin stochastic process of the geometric Brownian motion variety, affecting both consumption and productive capacity. Unlike the case of deterministic neoclassical growth, and contrary to the usual estimates for project evaluation, the stochastic nature of climate changes links the social discount rate (SDR) to volatility in two distinct and important ways. On the side of consumption and growth, the SDR is reduced by the likely negative effects of climate change (CC) on growth and food security. It also becomes dependent on the fact that the volatility of growth favors the accumulation of precautionary savings and thus reduces the rate of fall of the value of consumption over time. On the side of production capacity, the SDR is also reduced by the negative effect of CC on the productivity of capital and by the fact that the opportunity cost of the displacement of private investment under dynamic uncertainty is lowered by the value of the options to invest when more information will be available.
This paper assesses reserve management for determining optimal or minimal reserves for an oil pro... more This paper assesses reserve management for determining optimal or minimal reserves for an oil producing economy under dynamic uncertainty. Reserve benchmarks are formulated taking into consideration the amount of contingent liabilities in foreign exchange that arises during currency crises. These contingent liabilities are derived based on the analogy between holding domestic money and possessing a financial option whose payoff depends on the expected behavior of oil proceeds. When reserve accumulation has an opportunity cost in terms of capital goods, an optimum level of reserves can be established, given the capability of reserves to delay and mitigate currency crises. Alternatively, when reserves constitute the best means to accumulate country wealth, an appropriate minimal reserve level may be calculated. In this case, reserves act as an instrument of self-insurance that guarantees honoring a selected amount of foreign exchange claims at the time of a crisis. Econometric estimates for Venezuela show reasonable numerical values for counterfactual optimal and minimal reserves.
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Papers by Pasquale Scandizzo