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Abstract:
We derive the shape of optimal unemployment insurance (UI) contracts when agents can exert search effort but face different search costs and have private information about their type. We derive a recursive solution of our dynamic adverse selection problem with repeated moral hazard. Conditions under which the UI agency should always offer separating contracts are identified. We show that the good searcher receives an information rent and that the bad searcher receives the minimal entitlement. From a methodological point of view, we achieve a precise characterization of the sets of jointly feasible entitlements. This allows us to map our analytical results one-to one to a numerical algorithm. According to our results the contract for the good searcher has a decreasing benefit profile, as the one he would be offered in a pure moral hazard environment. In contrast, the contract of the bad searcher is distorted by an adverse selection effect, so that it tends to have an upward-sloping benefit profile. We provide a comparative static analysis of changes in various parameters of our model.

Unemployment Insurance, Adverse Selection, Moral Hazard

Abstract:
In the absence of an international agreement on climate policy, unilateral carbon abatement creates two problems: It tends to have a detrimental effect on domestic competitiveness, and it leads to an increase in carbon emissions abroad (leakage). This paper analyses two policies that have recently been proposed to mitigate these problems: Border tax adjustments (BTA) and integrated emission trading (IET). The former policy levies a quantity-based, the latter an emission based duty on imports from non-abating countries. In a stylised two-country model we demonstrate that the policies address both problems. However, BTA protects domestic competitiveness more effectively, while IET achieves a greater reduction in foreign emissions. A computational general equilibrium analysis of the unilateral abatement policy adopted by the European Union confirms our theoretical insights for the sectors covered by the offsetting measures. However, the implications for the competitiveness of noncovered sectors are negative. These two effects constitute the central trade-off in the implementation of both policies.

Border Tax Adjustments, Climate Policy, Competitiveness, Emission Trading

Abstract:
This paper analyses the macroeconomic costs of environmental regulation in European energy markets on the basis of existing macroeconomic simulation studies. The analysis comprises the European emission trading scheme, energy taxes, measures in the transport sector, and the promotion of renewable energy sources. We find that these instruments affect the European economy, in particular the energy intensive industries and the industries that produce internationally tradeable goods. From a macroeconomic point of view, however, the costs of environmental regulation appear to be modest. The underlying environmental targets and the efficient design of regulation are key determinants for the cost burden.

Environmental regulation, energy market, macroeconomic costs

Abstract:
Sensitivity analysis studies how the variation in the numerical output of a model can be quantitatively apportioned to different sources of variation in basic input parameters. Thus, it serves to examine the robustness of numerical results with respect to input parameters, which is a prerequisite for deriving economic conclusions from them. In practice, modellers apply different methods, often chosen ad hoc, to do sensitivity analysis. This paper pursues a systematic approach. It formalizes deterministic and stochastic methods used for sensitivity analysis. Moreover, it presents the numerical algorithms to apply the methods, in particular, an improved version of a Gauss-Quadrature algorithm, applicable to one as well as multidimensional sensitivity analysis. The advantages and disadvantages of different methods and algorithms are discussed as well as their applicability.

Sensitivity Analysis, Computational Methods

Abstract:
Adaptation to climate change is becoming increasingly important in the political and scientific debate. The reason for this is that climate change impacts are visible already today and will intensify in the next decades. Furthermore, the prospects for an effective international agreement on climate policy with binding emission reduction targets are uncertain. The economic analysis of adaptation, however, is still in its infancy with a few economic studies covering specific aspects of adaptation. Therefore, this paper aims at developing a broad economic framework for adaptation which can provide a foundation and a starting point for future economic research. The economic analysis allows us to distinguish between autonomous adaptation by private agents on the one hand and collective adaptation measures by government entities on the other. Our theoretical economic approach follows the basic economic paradigm of efficient competitive markets where government intervention is justified by market failure only. The most important case of market failure in adaptation is the provision of public goods, such as dykes or weather information systems. Moreover, we discuss further political objectives, namely equity and security of supply, in the context of adaptation to climate change. The approach developed in the theory part is then applied to the case of Germany. Due to its size and geography as well as its relatively diversified sectoral structure Germany is a good example to analyze and develop adaptation measures in climate sensitive sectors in industrialized countries, particularly in Europe. The case study on Germany which is based on the available literature covers sectors that are particularly vulnerable to climate change, namely agriculture, energy, water and coastal protection, and human health. While from an economic perspective adaptation in agriculture and energy should predominantly be autonomous, the government has a role in the sectors water, coastal protection and health. The results indicate that in Germany beside the negative impacts of climate change positive impacts are to be expected in some sectors, such as agriculture. Therefore a differentiated adaptation strategy by consumers, producers, and policy makers requires more research into the climate impacts on different sectors of life and the economy.

climate change, adaptation, market failure, insurance