Fields:
Environmental Economics,
Industrial Organization,
Applied Econometrics

Expected Graduation Date:
June, 2012

Thesis Committee:
Lawrence H. Goulder (Primary):
[email protected]

Michael Boskin:
[email protected]

Han Hong:
[email protected]

Jakub Kastl:
[email protected]

This paper builds a model of the sealed-bid uniform price auctions of emissions permits in a cap-and-trade system, to characterize the symmetric linear Bayesian demand function equilibrium (LBDFE) with the presence of competitive resale market, and to analyze the interaction between the primary auction market and the secondary trading market of emission allowances. The model explains that the underpricing of the auction is positively affected by the liquidity of secondary market and the volatility of trading price. I then conduct an empirical analysis on the Regional Greenhouse Gas Initiative (RGGI) program based on the model. Using a structural approach, I propose a statistical procedure to process the summary data of the eight RGGI quarterly auctions together with the data of futures trading daily price of CO2 allowances during the period from August 2008 to June 2010. By random sampling bidders' bid points and the noises in value signals, I calibrate the parameters of the auction model, and obtain counterfactual results for the hypothetical scenario when there is no resale allowed. It shows that the magnitude of underpricing won't necessarily be exacerbated by the resale market as the participation of non-compliance bidders may enhance the competition in auctions, while reserve price has helped to alleviate the underpricing. The results in this paper provide evidences supporting several auction design policies for cap-and-trade programs such as reserve price and encouraging more bids submissions.

This paper conducts empirical analysis on US EPA's SO2 emission allowances program to compare the potential auction revenue from different auction formats. Using the detailed bidder level data of the 18 annual discriminatory price auctions of the SO2 allowances from 1993 to 2010, I use the structural econometric model proposed by Hortacsu (2002) to estimate bidders' marginal valuations and compare counterfactual auction proceeds under uniform price format, showing that discriminatory auction would raise higher revenue for the cap- and-trade program in the initial auctions. This paper also analyzes the impact of auction size on the secondary emission trading market, with respect to the price fluctuation and volume change, giving insights on which type of market participants prefer auction versus secondary trading market.

This research uses cointegration analysis to exploit the basis in spreads across different credit markets. Specifically, we pair-wise test the time series of CDS, LCDS and loan OAS spreads for the same underlying entity during January 2007 to June 2008. The empirical evidences show that without adjusting for the cancellation option for LCDS, there are more names with a negative basis between LCDS and CDS in our sample. Presumably, if we adjust for cancellation option of the LCDS contract, the result for our sample will have more obvious evidence for negative basis. For the relationship between OAS and LCDS, we haven't obtained a very conclusive result, for either the linear ratio or the direction of basis. But our empirical study helps reveal the complexity of the story linking OAS and LCDS. And if we are able to extend the study to other data samples, we might get an improved result.

This paper presents the results from a cointegration analysis on the time series of corn spot price and ethanol production in the United States. A lot of criticism comes forth with the idea that ethanol production pushes the corn price up causing the food cost arises for the poor who primarily live on corn-based diet. People also concern that ethanol production attracts the corn suppliers and reshapes the corn market in that it diverts corn away from food and livestock feed markets. This research reevaluates above criticism against enlarged ethanol production. The statistical results obtained from this cointegration analysis shows no evidence that the increased usage of corn in ethanol production could be the major force driving corn price.

The recurrent boom-bust cycles of the Chinese macro-economy have been salient since the beginning of the economic reform, which are featured with the co-movement of output growth and inflation. This paper describes that the accumulation of bed debts in state banks, the enlarged non-state-owned sector, and the inconsistent credit control policy are interrelated phenomena concurrent with the fiscal decentralization. The cycles of macroeconomic fluctuation are resulted from the diversion of resources from state-owned sector into non-state-owned sector, so central bank has to subsidize the SOEs by increasing money supply. I use a dynamic searching model of intra-district games between governments and firms and an inter-district Markov sequential game between local governments to explain the cause of SOEs� soft budget constraint problem, and show that fiscal decentralization will not fix the problem but lead to the �tragedy of the commons� in the Chinese banking system..

This paper examines monopoly pricing and competitive pricing of network goods for consumers with heterogeneous preferences. Based on the monopolist model for continuous-type consumers, I solve the instantaneous competing pricing problem and analyze the equilibrium market structure with and without a time lag of discriminatory price adjustment. If the time lag exists and if network externalities are large enough, there is a multi-period problem. I derive the optimal dynamic competing pricing strategies for both finite periods and infinite periods, and conclude that price discrimination promotes efficiency by reducing the extent of excess inertia. Incomplete information and large network externalities are necessary for the dynamic problem to occur. Larger network effects lead to higher prices in each period.

This paper exploits the magnitude of behavioral failure that contributes to the "efficiency gap" under a dynamic market framework, using solar water heater installation data in New Zealand as an example.