Pricing Principles Research Articles

Fatalities among Civil Infrastructure Workers: Variable Annuity with Guaranteed Minimum Death Benefits Approach

AbstractMany studies are concerned with monitoring, evaluating, expanding, repairing, replacing, financing, or otherwise sustaining the civil infrastructure. Few studies address the ongoing and evolving financial problems associated with the workers responsible for developing civil infrastructure development. According to U.S. federal statistics, civil infrastructure activities are responsible for 22% of all work-related fatalities—the highest among all industries. In 2008, 429,000 nonfatal injuries and 1,005 fatal injuries were recorded on job sites. However, civil infrastructure workers still have some of the weakest coverage of health and retirement benefits. It is crucial to have a strong system that protects workers and their families in cases of work-related fatal and nonfatal injuries. This paper developed a financial model incorporating a variable annuity embedded with guaranteed minimum death benefits. The model is based on the principles of insurance pricing, option theory, Monte Carlo simulatio...

The Design and Research of the Next Generation of ERP Based on GPS and GIS

Using GPS and GIS technology, the next generation of ERP (Electronic Road Pricing) system, are designed in this paper. The structure and approaches of the system has also been presented. The next generation of ERP system has resolved the issues of traditional ERP system, such as, high cost, unavailable for wide range of application. And, The new system not only more consistent with road pricing principles and objectives of reducing traffic congestion and air pollution, but also more flexible for the integration of ERP system with other Intelligent Transportation Systems (ITS). The paper also elaborated the key technical issues of the system.

Maximum-loss, minimum-win and the Esscher pricing principle

Maximum-loss (Max-loss) was recently introduced as a valuation functional in the context of systematic stress testing. The basic idea is to value a (financial) random variable by its worst case expectation, where the most unfavourable probability measure—the ‘worst case distribution’—lies within a given Kullback–Leibler radius around a previously estimated distribution. The article gives an overview of the properties of this measure and analyses relations to other risk and acceptability measures and to the well-known Esscher pricing principle, used in insurance mathematics and option pricing. The main part of the article focuses then on optimal decision-making—in particular related to portfolio optimization—with Max-loss as the objective function to be minimized. A simple algorithm for dealing with the resulting saddle point problem is introduced and analysed.

Tarification optimale et formes contractuelles dans un programme d'infrastructures en ppp

Résumé Le développement récent de diverses formes de partenariat public-privé pour le financement, la réalisation ou l’exploitation d’équipements publics n’a pas bouleversé le calcul économique. Cet article examine dans quelle mesure il convient, cependant, d’en amender l’usage en cas de ppp , qu’il s’agisse d’optimiser le choix des investissements ou leur tarification. De la cohérence entre ces deux optimisations résultent un principe de tarif optimal de programmation ainsi que la forme de contrat qui lui correspond. Ces résultats sont probablement transposables dans d’autres domaines de l’action publique, mais résultent ici de la déclinaison de ces questions dans le cas du secteur des transports pour lequel il s’agit de thèmes très actuels.

Marginal Cost Pricing and Eminent Domain

There are three separate strands of literature in economics that are related to the efficiency of takings under eminent domain: one addresses the question of optimal compensation for properties that are taken, a second inquires how governments might learn the values of properties that they consider taking, while a third analyzes solutions to the problem of land assembly. This essay reviews these strands of literature and argues that the principle of marginal cost pricing can be used as a unifying principle for integrating them.

Carbon Pricing that Builds Consensus and Reduces Australia's Emissions: Managing Uncertainties Using a Rising Fixed Price Evolving to Emissions Trading

This paper identifies principles for carbon pricing that could attract a broad based and durable societal consensus in Australia. It applies these principles to a phased carbon pricing architecture as put forward by Australia's Multi-Party Committee on Climate Change, namely a government determined (fixed) carbon price transitioning to emissions trading. Linking to international carbon markets decouples Australia's domestic carbon price from its national emissions target, allowing significant net national emissions reductions with manageable transitional impacts. A fixed price in the near term can end costly delays to carbon pricing while dealing with uncertainties about Australia's target and international markets. A strategy is outlined to manage international uncertainties and to accommodate the multiple goals of domestic constituencies, while achieving efficiency and effectiveness. First, ensure the medium term carbon price is high enough to for emissions to begin to trend down in the next few years, recognising that investment decisions are shaped by current expectations about future prices. Second, set the initial price at a level that gives confidence that short run impacts will be manageable, given other transitional assistance. Third, ensure that wider policy settings do not compromise incentives for reducing emissions, and make the scheme robust in the face of competing claims for carbon revenue and lobbying efforts. For Australian carbon pricing policy, these principles suggest the carbon price may need to rise rapidly over the course of the decade, to double or more compared to starting prices that are currently in the Australian discussion. Payments of carbon pricing revenue to industry may need to be limited to create more room for income tax cuts, possibly by means of an overall cap and accelerated phase-out of industry assistance. Forestry and agricultural offsets can be supported through the scheme, but at the cost of fiscal revenue.

Optimal Pricing of a Duopoly Platform with Two-Sided Congestion Effect

We study, in this paper, the impact of two-sided congestion effect on the pricing policy of a twosided duopoly platform. Relative to Armstrong (2006), we show that, with congestion effect, (i) competition for submarket share is softened, (ii) the divide-and-conquer pricing strategy is modified insofar as it depends upon the differential of the marginal congestion costs and (iii) each platform charges any agent of one side a price that covers not only the marginal congestion cost that he imposes on agents of his own side having joined its platform, as the traditional principle of the textbook congestion pricing, but also it covers the marginal congestion cost that he indirectly imposes on the of-his-type agents having chosen to join the rival platform. This issue matters despite there is no technical link between the two platforms.

Transfer Pricing Guidance Issued on Intercompany Financing

On 28 January 2011, the Luxembourg tax authorities issued Circular L.I.R. n° 164/2 providing guidance on intra-group lending activities financed by borrowings. The Circular clarifies the tax treatment of intercompany financing and determines the taxable result in accordance with OECD transfer pricing principles.

REACTIVE POWER PRICING IN DISTRIBUTION NETWORKS

Tariffs for electricity including these for reactive energy are a significant tool for raising energy efficiency in the economy. This paper focuses on practical reactive energy tariff formation in distribution networks under deficient primary information providing meanwhile sufficient revenue for the distribution utility in order to fulfil efficient transfer service and encourage adequate reactive power compensation by customers. Reactive energy pricing principles are observed and an overview of the reactive energy and power tariff structures implemented around the world is included. The article presents a simplified methodology of reactive energy pricing for practical use. The price for reactive energy consumed from the distribution network is expressed as the sum of the price of reactive energy consumed from the transmission network and the price of distribution network transfer service, which is complemented with a profit margin for the distribution network, excise tax and value-added tax. The paper delivers a practical calculation method for the variable and fixed components of reactive energy transfer service.

Credit Risk Mitigation Based on Jarrow-Turnbull Model

Credit risk mitigation tool (CRM) is an innovative credit risk management tool that pilot launched by the inter-bank market in 2010, it stripping and pricing the credit risk of commercial paper, medium-term notes, bank loans and other assets, and transferred the risk to other investment, their introduction radically changed the traditional features of credit risk management. Through analysis the pricing principle of CRM, draw the main factors of CRM pricing include risk-free interest rate, duration of CRM, exposure, the probability of default, loss given default and maturity of the underlying bond. CRM Pricing based on the financial engineering model- Jarrow-Turnbull, draw the conclusion that the appropriate risk-free interest is the interest rate of Treasury bill or the central bank bill, the model is suitable and reasonable for CRM pricing which having different term and different credit rating. According to the pricing results, Giving CRM pricing optimization solution like improving underlying database, exploring the basis of risk-free interest rate, innovation rating system, guiding the market diversification.

Determining the Place of Taxation of Transactions under VAT/GST: Some countries cite their form of value added tax as a “Goods and Services Tax” (GST). For ease of reading we refer to all value added taxes as “VAT”. Can Transfer Pricing Principles Help? This article does not explore issues concerning valuation or timing although it does recognize that these are

In this article, the authors consider how Transfer Pricing principles for corporate income taxes as set out under Articles 7 and 9 of the OECD Model Tax Convention may potentially be of some use for VAT/GST regimes in determining the place of taxation in connection with cross-border transactions. It contains a discussion of the differing approaches taken for corporate income tax and VAT/GST purposes in relation to intra-entity dealings. It then describes how price adjustments or reallocations of income may be required under the arm’s length principle, and the impact these may have on ensuring that the correct place of taxation for VAT purposes may be achieved.

Transportation Economics: Some Developments Over the Past 30 Years

This paper looks at the changes that have occurred since the 1970s in the types of economic tools used, the ways they have been used, and the impacts they have had in shaping the way we now understand transportation. Over the past 30 years, society's views on transport have changed and, with this, the issues to which we attach priority have altered. Additionally, there have been important changes in our more generic understanding of economics and this has added to the toolkit of concepts that can be applied to transport matters. The tradition of transportation economics up until the late 1960s was largely one of defining 'optimal' pricing principles in regulated markets, in understanding market domination for mergers and similar policies, and in providing advice to engineers dealing with investment decisions. There is now, however, an appreciation that providing transport services is more complex than was once thought and, therefore, it is better to leave as much as possible to market forces; but this has also happened at a time when our understanding of markets has changed. There has additionally been the emergence of novel political and governance structures, such as the Single European Market, that have resurrected older interests in such things as links between economic development and transport quality. Despite this shift to the market as a primary means of resource allocation, parallel moves have taken place to embrace more fully the external costs of environmental damage. The advent of computers, more sophisticated econometric and programming techniques, and the availability of new data sources, such as GIS, have facilitated more efficient estimation of parameters and added to the quantitative contribution of economics.

No-arbitrage, state prices and trade in thin financial markets

We examine how non-competitiveness in financial markets affects the choice of asset portfolios and the determination of equilibrium prices. In our model, potential arbitrage is conducted by a few highly specialized institutional investors who recognize and estimate the impact of their trades on financial prices. We apply a model of economic equilibrium, based on Weretka (http://www.ssc.wisc.edu/~mweretka/Research, 2007a), in which price effects are determined endogenously as part of the equilibrium concept. For the case in which markets allow for perfect insurance, we argue that the principle of no-arbitrage asset pricing is consistent with non-competitive behavior of the arbitragers and extend the fundamental theorem of asset pricing to the non-competitive setting.

Polska Telefonia Cyfrowa: Pricing of Number Portability: Cost- or Demand-Based?

In a judgment of 1 July 2010 (C-99/09 Polska Telefonia Cyfrowa), the European Court of Justice of the European Union (ECJ) has further clarified the pricing principles with respect to the portability of telephone numbers between communications networks. This ruling constitutes a welcome complement to the Court's existing case law on the topic (Case C-438/04 Mobistar [2006] ECR I-6675).

The Ps of Pricing and Risk Management, Revisited

Traditional pricing and risk management principles have to be reconsidered in the light of the involvement of large public and private participants in the securities markets. The author explores the impact of the actions of participants on the building blocks of asset pricing models as well as the emergence of the impact of the policy factor on asset pricing and risk measurement. This discussion re-emphasizes the need for simple principles for asset selection and portfolio construction.

Rail access charges and the competitiveness of high speed trains

This paper examines rail access charges for high speed trains on new high speed lines in Europe and the impact these have on the market position of high speed rail. It examines the latest evidence on the marginal infrastructure and external costs of high speed rail, finding that the best evidence is that these are both not more than 2 €/train-km. However, current legislation states that environmental costs should not be charged for unless they are charged for on competing modes. Mark ups based on Ramsey pricing principles might reasonably raise prices by 100–200%, given that infrastructure charges are only a part of the final price of rail. The paper then examines the actual prices charged in the main European countries operating high speed trains and the impact these are likely to have on traffic levels and mode split. It is found that mark ups often exceed even the optimal Ramsey levels, with a significant impact on rail volumes and market share. It is concluded that, whilst it is not surprising that governments wish to recover some of the construction costs of new high speed rail lines from users, they should consider carefully whether the level of charges is actually significantly reducing traffic on and benefits from these lines.

Programming, optimal pricing and partnership contract for infrastructures in PPPs

The development of various forms of public-private partnerships for the financing, building and operating of public infrastructure has not fundamentally altered the economic calculations involved. This chapter examines to what extent it is necessary, however, to change the way that government uses socio-economic and financial evaluations, whether to optimise investment programming or pricing. Ensuring a coherent match between these two types of optimisation can provide a principle for determining the optimal programming price. We begin by showing that when projects are financed by both users (toll revenues) and taxpayers (subsidies), it is socially beneficial to plan these investments on the basis of the net present value (NPV) provided by each unit of public money invested. This NPV/subsidy ratio must obviously be higher than the public-funding scarcity coefficient or else the investment would destroy more wealth than it would produce. One of the ways of improving this ratio is also to optimise the toll level, since increasing it can lower the subsidy but has an adverse impact on the user surplus, it is essential to set the optimal toll. In the case of an approved project considered in isolation, we show that the optimal toll depends upon the public-funding scarcity coefficient. If there is no scarcity, the optimal toll is zero. As public-funding becomes scarcer, the optimal toll draws closer to the toll that optimises revenue. In the case of a programme of several projects subject to budget constraint, we show that the optimal toll no longer depends upon the public-funding scarcity coefficient and that there are several scenarios depending on the relative values of the maximum revenue and the total cost of the project: − when, whatever the toll, revenue can no longer cover over half of the cost, it is socially beneficial to choose not to levy any toll; − when there is a toll that covers the total cost, the operator may be left free to set it at the level he sees fit, with the issue of how the profits are to be shared between the franchisee and the franchisor being settled separately; − when the maximum revenue of the project falls between half and all of the total cost, the value of the toll that maximises the welfare function is lower than the revenue-maximising toll and must therefore be set for the private operator by government. Thus, the partnership contract must be given a different content in these three cases of optimal pricing. Preamble Most of the theoretical studies devoted to optimising public investment programming and infrastructure pricing have, since the work of Jules Dupuit (1844), focused on the salient issues of the transport sector, even though this work was relevant to all sorts of public infrastructure. The analysis presented in this paper deals with transport economics, but in line with this tradition, is also applicable to any field in which public-funding is combined with commercial revenue. For example, the question of determining how the financing of an opera should be shared between taxpayers and opera-goers raises the same type of issues as the optimal combination of tolls and subsidies for financing a motorway project. This report will be focused on these issues. We shall see that certain precautions are called for in investment programming together with some new thinking on pricing principles.

Sustainability implications of railway infrastructure charging and cost allocation: the case of Bulgaria

The necessity of market-based decisions is a key factor for the development of the railway transport. The main aim of this paper is to study the infrastructure charging regime and cost allocation methodology, currently, in use in Bulgaria in order to reveal the level of implementation of the European transport pricing policy in the country. The analysis of adopted cost allocation approaches as well as the current market signals and their influence on the railways performance permits to outline the opportunities for implementation of new progressive pricing principles which could facilitate the move towards sustainable transport.

The regulation of commercial petroleum pipeline operations: a South African example

This paper provides an overview of a study of economic regulatory aspects of commercial petroleum pipeline operations. It addresses (1) the market structure, ownership patterns, and relative efficiency of petroleum pipeline transport; (2) pipeline operating costs; (3) proposed pricing principles. The research approach and methodology combine (1) a literature survey; (2) analysis of the cost structures of large commercial petroleum pipeline operators; and (3) interviews conducted with specialists in the petroleum refining and pipeline industries. The potential value of the research lies mainly in the developed guidelines for the economic regulation of market entry and pricing of the carriage of petroleum commodities by pipeline.

Willingness to pay and municipal water pricing in transition: a case study

Water utilities in Calcutta, India are historically subsidized. This has kept residents quite unfamiliar with the concept of volumetric pricing of water. But pricing strategies have recently been receiving attention and the charges regime appears to be in transition. However, pricing with the objective of full cost recovery may not be feasible or even desirable in the transitional phase. The purpose of the article is to formulate a water pricing principle by using consumers' willingness to pay (WTP). A contingent valuation study revealed that people were willing to pay a charge of Rs. 3.18 per kiloliter for a monthly average household water use of 12.59 kiloliters. Such a principle, which considers consumers' WTP, may neutralize the political and public resentment in the phase of transition and can be a base for full cost recovery in the future. Respondents also expressed an opinion that the poor should receive some support from the government and contribute a part for smooth functioning of the water supply system.