Department of Economics
D891 Loeb, 1125 Colonel By Drive
Ottawa, ON, K1S 5B6
NBER Working Papers and Publications
|April 2018||Coordinating Separate Markets for Externalities|
with Jose-Miguel Abito, Christopher R. Knittel, André Trindade: w24481
We show that inefficiencies from having separate markets to correct an environmental externality are significantly mitigated when firms participate in an integrated product market. Firms take into account the distribution of externality prices and reallocate output from markets with high prices to markets with low prices. Investment in cleaner and more efficient capacity serves as an additional mechanism to reallocate output, which increases the marginal benefit of investment, and consequently improves longer-term outcomes. Using data from an integrated wholesale electricity market, we estimate a dynamic structural model of production and investment to bound the loss from separate markets for carbon dioxide emissions, and quantify the extent to which optimal investment can compensate for t...
|May 2016||Carbon Emissions and Business Cycles|
with Hashmat Khan, Christopher R. Knittel, Maya Papineau: w22294
U.S. carbon dioxide emissions are highly procyclical—they increase during expansions and fall during recessions. Given this empirical fact, we estimate the response of emissions to four prominent technology shocks from the business-cycle literature using structural vector autoregressive methodologies and data for 1973–2012. By studying the response of emissions to these shocks, we provide a novel approach to assess the shocks’ relevance as sources of aggregate output fluctuations. We find that emissions rise on impact only after an anticipated investment-specific technology shock; the response is statistically significant after the first quarter. The same shock explains most— roughly a third—of the total variation in emissions at a horizon of 5 years. Notably, emissions decrease on impact ...
|October 2015||Natural Gas Prices and Coal Displacement: Evidence from Electricity Markets|
with Christopher R. Knittel, Andre Trindade: w21627
We examine the environmental impact of the post-2005 natural gas glut in the United States due to the shale gas boom. Our focus is on quantifying short-term coal-to-gas switching decisions by different types of electric power plants in response to changes in the relative price of the two fuels. In particular, we study the following entities: investor-owned utilities (IOUs) and independent power producers (IPPs) in restructured markets coordinated by Independent System Operators, as well as IOUs in traditional vertically-integrated markets. Using alternative data aggregations and model specifications, we find that IOUs operating in traditional markets are more sensitive to changes in fuel prices than both IOUs and IPPs in restructured markets. We attribute our findings to differences in ava...
|June 2008||Estimation of Random Coefficient Demand Models: Challenges, Difficulties and Warnings|
with Christopher R. Knittel: w14080
Empirical exercises in economics frequently involve estimation of highly nonlinear models. The criterion function may not be globally concave or convex and exhibit many local extrema. Choosing among these local extrema is non-trivial for a variety of reasons. In this paper, we analyze the sensitivity of parameter estimates, and most importantly of economic variables of interest, to both starting values and the type of non-linear optimization algorithm employed. We focus on a class of demand models for differentiated products that have been used extensively in industrial organization, and more recently in public and labor. We find that convergence may occur at a number of local extrema, at saddles and in regions of the objective function where the first-order conditions are not satisfied. ...