Search Results

The theory of optimal forest management is a key component of the economic theory of natural resources due to the fact that forests constitute a major renewable resource. It also constitutes one of the key examples of vintage capital theory, making it an important factor in understanding the general theory of intertemporal allocation. This chapter explores the theory of optimal forest management, focusing on the forester's (optimal) policy function. Whereas the literature places an (almost exclusive) emphasis on long-run behaviour of optimally managed forests, the chapter focuses on the optimal harvesting and replanting decisions that should be implemented currently, given any inherited forest. Using bifurcation analysis, it examines how the optimal policy function changes in response to variations in two key parameters of the forestry model: the growth rate of trees and the planner's discount rate.

Dynamic optimization is widely used in many fields of economics, finance, and business management. Typically one searches for the optimal time path of one or several variables that maximizes the value of a specific objective function given certain constraints. While there exist some analytical solutions to deterministic dynamic optimization problems, things become much more complicated as soon as the environment in which we are searching for optimal decisions becomes uncertain. In such cases researchers typically rely on the technique of dynamic programming. This chapter introduces the principles of dynamic programming and provides a couple of solution algorithms that differ in accuracy, speed, and applicability. Chapters 8 to 11 show how to apply these dynamic programming techniques to various problems in macroeconomics and finance. To get things started we want to lay out the basic idea of dynamic programming and introduce the language that is typically used to describe it. The easiest way to do this is with a very simple example that we can solve both ‘by hand’ and with the dynamic programming technique. Let’s assume an agent owns a certain resource (say a cake or a mine) which has the size a0. In every period t = 0, 1, 2, . . . ,∞ the agent can decide how much to extract from this resource and consume, i.e. how much of the cake to eat or how many resources to extract from the mine.We denote his consumption in period t as ct. At each point in time the agent derives some utility from consumption which we express by the so-called instantaneous utility function u(ct). We furthermore assume that the agent’s utility is additively separable over time and that the agent is impatient, meaning that he derives more utility from consuming in period t than in any later period.We describe the extent of his impatience with the time discount factor 0 < β < 1.

This chapter explores the relationship between government debt dynamics and the sustainability of fiscal policies by focusing on gap measures based on the difference between the actual value of a fiscal magnitude, such as the primary balance, and the notional value that would meet specific criteria, such as hitting a target debt ratio in a specified time or satisfying the intertemporal budget constraint (IBC) of the government; estimates of fiscal policy reaction functions (FPRF) that allow testing the consistency of these FPRFs with the IBC condition or the absence of Ponzi-game explosive debt dynamics; and fiscal vulnerability indicators that can flag the likelihood of a future fiscal crisis or stress episode when prespecified threshold values are crossed (typically based on the past predictive power of the indicators). The chapter also presents extensions of basic debt dynamics methodology for the treatment of government assets and the dynamics of net debt, as well as the methodological adjustments necessary to deal with foreign currency-denominated and inflation-indexed debt.

This chapter studies adaptive learning with multiple models. An agent is aware of potential model misspecification, and tries to detect it, in realtime, using an econometric specification test. If the current model passes the test, it is used to construct an optimal policy. If it fails the test, a new model is randomly selected from a fixed set of models. As the rate of coefficient updating decreases, one model becomes dominant, and is used ‘almost always’. Dominant models can be characterized using the tools of large deviations theory. The analysis is applied to a standard cobweb model.

This chapter discusses the future of the Commission's jurisdiction over both antitrust and consumer protection laws. It draws out several key issues, including the appropriate structure and status of the agency and the ideal mix of both powers and responsibilities.

This chapter provides an overview of the powers, composition, operation, and internal organization for each of the four 'political institutions' of the European Union: the European Parliament, the European Council, the Council, and the European Commission. According to Article 14(1) TEU, the European Parliament exercises, jointly with the Council, legislative and budgetary functions and exercises, in addition, functions of political control and consultation as laid down in the Treaties. Moreover, the European Parliament may advise and adopt resolutions pertaining to societal issues. According to Article 15(1) TEU, the European Council's tasks remain to provide the Union with the necessary impetus for its development and to define the general political directions and priorities of the Union. Meanwhile, according to Article 16(1) TEU, the Council, jointly with the European Parliament, exercises legislative and budgetary functions and carries out policy-making and coordinating functions as laid down in the Treaties. Finally, Article 17(1) TEU unequivocally declares that the European Commission is the Union institution which promotes the general interest of the Union and takes appropriate initiatives to that end.

This chapter examines the relationship between exchange rates and interest rates during the 1997–98 exchange rate crises in Korea, the Philippines and Thailand. It aims to determine whether exogenous monetary-policy-induced increases in the interest rate in these economies cause exchange rate depreciation or appreciation. This chapter proposes a two-equation model for exchange rates and interest rates which include a monetary policy reaction function and an interest parity equation. It explains that increases in interest rates following crises led to exchange rate appreciation in Korea and the Philippines but to depreciation in Thailand.