Economics
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Item The Economics of Nuclear Power(2006-11-28) Horst, Ronald L; Rust, John; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)We extend economic analysis of the nuclear power industry by developing and employing three tools. They are 1) compilation and unification of operating and accounting data sets for plants and sites, 2) an abstract industry model with major economic agents and features, and 3) a model of nuclear power plant operators. We build a matched data set to combine dissimilar but mutually dependent bodies of information. We match detailed information on the activities and conditions of individual plants to slightly more aggregated financial data. Others have exploited the data separately, but we extend the sets and pool available data sets. The data reveal dramatic changes in the industry over the past thirty years. The 1980s proved unprofitable for the industry. This is evident both in the cost data and in the operator activity data. Productivity then improved dramatically while cost growth stabilized to the point of industry profitability. Relative electricity prices may be rising after nearly two decades of decline. Such demand side trends, together with supply side improvements, suggest a healthy industry. Our microeconomic model of nuclear power plant operators employs a forward-looking component to capture the information set available to decision makers and to model the decision-making process. Our model includes features often overlooked elsewhere, including electricity price equations and liability. Failure to account for changes in electricity price trends perhaps misled earlier scholars, and they attributed to other causes the effects on profits of changing price structures. The model includes potential losses resulting from catastrophic nuclear accidents. Applications include historical simulations and forecasts. Nuclear power involves risk, and accident costs are borne both by plant owners and the public. Authorities regulate the industry and balance conflicting desires for economic gain and safety. We construct an extensible model with regulators, plant operators, insurance companies, and consumers. The model possesses key attributes of the industry seldom found in combination elsewhere. We then add additional details to make the model truer to reality. The work extends and corrects existing literature on the definition, effects, and magnitudes of implicit subsidies resulting from liability limits.Item Time Inconsistency in the Credit Card Market(2004-11-29) shui, haiyan; Ausubel, Lawrence M; Rust, John; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Does consumer behavior exhibit time inconsistency? This is an essential, yet difficult question to answer. This dissertation attempts to answer this question based on a large-scale randomized experiment in the credit card market. Specifically, we apply both time consistent preferences (exponential) and time inconsistent preferences (hyperbolic) to study two puzzling phenomena in the experiment. The two puzzling phenomena seem to suggest time inconsistency in consumer behavior. First, more consumers accept an introductory offer that has a lower interest rate with a shorter duration than a higher interest rate and a longer duration. However, ex post borrowing behavior reveals that the longer duration offer is better, because respondents keep on borrowing on the credit card after the introductory period. Second, consumers are reluctant to switch, and many of those consumers who have switched before fail to switch again later. A multi-period model with complete information is studied analytically, which shows that standard exponential preferences cannot explain the observed behavior because they are time consistent. However, hyperbolic preferences that are time inconsistent come closer to rationalizing the observed behavior. In particular, two special cases of hyperbolic discounting are carefully examined, sophisticated and naive. Sophisticated consumers prefer the short offer because it serves as a self-commitment device. Naive consumers prefer the short offer because they underestimate their future debt. To further explore the possibility of explaining observed behavior by exponential preferences, we study a dynamic model in which realistic random shocks are incorporated. Estimation results show that consumers have severe self-control problem with a present-bias factor (0.8). It is also shown that the average switching cost is $150. With the estimated parameters, the dynamic model can replicate quantitative features of the data.