Price-based Mechanism Research Articles

Liquidity regulation and banks: Theory and evidence

This paper theoretically and empirically investigates the effects of liquidity regulation on the banking system. We document that the current quantity-based liquidity rule has reduced banks' liquidity risks. However, the mandated liquidity buffer appears to crowd out bank lending and lead to a migration of liquidity risks to banks that are not subject to liquidity regulation. These findings motivate a model of liquidity regulation with endogenous liquidity premiums and heterogeneous banks. The model shows that the current liquidity rule can improve upon the unregulated equilibrium but can also have distortionary effects because of the dual role of the liquidity buffer as an implicit tax and a costly mitigator of liquidity risks. The fixed quantity mandate can interact with the uncertain liquidity demand, amplifying the volatility in the liquidity premium. A central bank committed liquidity facility could improve the current quantity-based regulation by introducing a price-based mechanism.

A Review on Demand Side Management Applications, Techniques, and Potential Energy and Cost saving

Electrical peak load demand all over the world is always anticipated to grow, which is challenging electrical utility to supply such increasing load demand in a cost effective, reliable and sustainable manner. Thus, there is a need to study some of load management (LM) techniques employed to minimize energy consumption, reduce consumers' electricity bills and decrease the greenhouse gas emissions responsible for global warming. This paper presents a review of several recent LM strategies and optimization algorithms in different domains. The review is complemented by tabulating several demand side management (DSM) techniques with a specific view on the used demand response (DR) programs, key finding and benefits gained. A special focus is directed to the communication protocols and wireless technology, incorporation of renewable energy resources (RERs), battery energy storage (BES), home appliances scheduling and power quality applications. The outcome of this review reveals that the real time pricing (RTP) is the most efficient price-based mechanism program (PBP), whilst time of use (TOU) is the basic PBP and easiest to implement. Energy efficiency programs have proved the highest influential impact on the annual energy saving over the other dynamic pricing mechanism programs. Through a forecasted proposal of future study, DSM proved tremendous potential annual energy savings, peak demand savings, and investment cost rates within different consumption sectors progressively up to year 2030.

Търговска политика и икономически растеж в Нигерия

This study examines the effect of trade policy on Nigeria’s economic growth and uses annual data spanning from 1983 to 2018. The Augmented Dickey-Fuller test revealed that the variables employed have a mixed order of integration (i(0), i(1)). Thereafter, an Autoregressive Distributed Lag (ARDL) technique was employed because it suits the outcome of the pre-estimation test. A cointegration test among the variables was conducted using the ARDL bound test technique. The ARDL estimates showed that the adjusted trade ratio and the price-based variables have a positive impact on the GDP in both the short and the long run. The impulse response function for the estimated ARDL model was computed in order to confirm the accuracy of the Bound testing result. Interestingly, the findings remained robust when the potential effect of the trade policy was accounted for using the impulse response function (IRF) (see the Appendix). The IRF showed dynamically that the GDP responded positively to the trade policy at a higher horizon contrary to the short run estimate, thereby giving more credibility to the result of the ARDL which was being transformed by the IRF. The dynamic responses made it possible to find out that the GDP responded positively and negatively to trade policy, but that the accumulated (long run) effect was positive. The conclusion was reached that in Nigeria the adjusted trade ratio was procyclical while the price-based mechanism was countercyclical throughout the scope of study. The suggestion was made that the policy makers should adopt policies that can promote international trade and innovations, and can shut out any form of black market premium that may cause distortions.

Three aspects of uncertainty-related payoff dispersion in the prices vs quantities comparison for international climate mitigation mechanisms

We analyse three aspects in which international quantity-based mechanisms to control ghg emissions differ from international price-based mechanism: ex post dispersion of gains from participating, dispersion of overall ex post monetary payoff and dispersion of subjective ex ante utility. For a give carbon price established through a mechanism we have: The greater the ex post dispersion of gains from participating, the greater the expected number of countries that will quit the mechanism ex post. The greater the dispersion of overall ex post monetary payoff, the lower the ex ante utility, given risk aversion. The greater the dispersion in subjective ex ante utility gains from joining, the fewer countries will have an incentive to join. Based on some formal and some informal computations using bounds and plausible estimates of some variables, we obtain that prices will perform better than quantities in the first and third dimension, whilst quantities might actually perform better in the second. It seems likely that the first and third aspects are more important than the second. These considerations would thus overall weigh in favor of prices as a superior instrument for international climate mechanisms.

Package size and perceived quality: The intervening role of unit price perceptions

This research examines how package size can influence quality judgments for packaged goods, and also identifies a price-based mechanism for the observed size–quality relationship. Results from several studies show that a product in a smaller package is rated more favorably than the equivalent product in a larger package. Further, this effect is due to the smaller package being associated with a higher unit price (despite having a lower overall price), which suggests that unit price information is more diagnostic than overall price information when forming judgments of product quality. We also find a theoretically-derived reversal of this effect under conditions in which the greater diagnosticity of unit price is overwhelmed by its lower ease of use. Namely, when overall price is the only explicitly-provided price cue and consumers are too distracted to estimate unit price, a larger package is now rated as being better. Finally, two concluding studies examine the downstream consequences of changes in package size, building off our basic conceptualization to document effects on product choice as well as consumption experience.

Market discipline in Mexican banks: Evidence from the asset side

This paper studies the asset side market discipline effect in Mexico, whether borrowers pay higher interest rates (price-based mechanism) to high-quality banks, and consequently, whether borrowers discipline their banks. Borrowers continuously require credit and they choose large banks because their lending activity is trustworthy (a refinancing-solvency motive). In addition, borrowers prefer banks with lower loan losses to signal their creditworthiness to other stakeholders (a certification-signaling motive). Using a sample of 37 banks over the years 2008 to 2012 and a dynamic panel model, we found evidence in favor of these motives through a price-based mechanism, that is, the Mexican borrowers are willing to pay higher rates to larger banks with higher capital ratios and reserves for loan losses, or lower nonperforming loans. As a result, the Mexican banks face market discipline induced by borrowers, albeit thisdiscipline is absent in retail and largest banks.

A competitive equilibrium for a warm-glow economy

The warm-glow model (Andreoni in J Political Econ 97:1447–1458, 1989; Econ J 100:464–477, 1990) of public goods provision has received widespread interest, yet surprisingly most attention has focused on the voluntary contribution equilibrium of the model, and only very little attention has been devoted to the competitive equilibrium. In this paper, we introduce the concept of competitive equilibrium for a warm-glow economy (henceforth, warm-glow equilibrium) and establish both existence and welfare properties. The warm-glow equilibrium concept may prove to be very useful to the normative and positive theory of public goods provision. First, it is a price-based mechanism achieving efficient outcomes. Second, not only could the warm-glow equilibria outcomes serve as a point of reference to measure free-riding and welfare loss but also, as suggested by Bernheim and Rangel (Behavioral Economics and Its Applications, 2007), in large economies they may be approximated by Walrasian equilibria outcomes.

Bandwidth Allocation for a Revenue-Aware Network Utility Maximization

In this letter, we consider the Network Utility Maximization (NUM) problem in which a loss-related revenue indicator is set up by an operator as a constraint. We propose an algorithm which artificially modifies capacity constraints of a standard NUM algorithm. This results in a price-based mechanism that drives users into an operating point which maximizes total user utility for a given revenue indicator constraint.

Transmission costs, selfish nodes, and protocol design

We study the influence of transmission costs on the behavior of selfish nodes in wireless local area networks. Intuitively, it seems that transmission costs should have a stabilizing effect as (rational) nodes will defer packet transmissions when congestion develops and the cost for (successfully) transmitting a packet becomes high. In this paper we investigate whether this intuition is true. We use the slotted Aloha to model the communication channel where we capture the interaction among nodes as a non-cooperative game. For this game, we study the existence and properties of a (symmetric) Nash equilibrium. We show that the existence of a transmission cost is not always sufficient to guarantee stability. In particular, a stable equilibrium strategy will not exist if the transmission cost is too small. We then propose and analyze a price-based mechanism to guarantee stability and to optimize system performance in terms of throughput and delay.

Application of Distributed Optimal Power Flow to Power System Security Assessment

This paper presents an algorithm for the parallel solution of the security constrained optimal power flow (SCOPF) problem in a decentralized framework, consisting of regions, using a price-based mechanism that models each region as an economic unit. We first solve the distributed optimal power flow (OPF) problem to determine the maximum secure simultaneous transfer capabilityof each tie-line between adjacent regions by taking into account only the security constraints imposed on the tie-lines. In this article, the line outage distribution factors (LODF) calculated at the current state are used to formulate the appended constraints. Once the secure transfer capability of each tie-line is determined, the intraregional SCOPF is performed using the conventional linear programming (LP) approach. A description of the inclusionof security constraints with the distributed optimal power flow algorithm will be given, followed by the case studies for Korea Electric Power System.

A method of inclusion of security constraints with distributed optimal power flow

In this paper, we propose that the SCOPF (Security Constrained Optimal Power Flow) be solved in a decentralized framework, consisting of regions, using a price-based mechanism. We first solve the distributed OPF problem to determine the maximum secure simultaneous transfer capability of each tie-line between adjacent regions by taking only the security constraints imposed on the tie-lines into account. And then, the regional SCOPF is performed using the conventional LP approach. A description of the inclusion of security constraints with the distributed OPF algorithm will be given, followed by a case study for the 3-region IEEE 24-Bus reliability test system.