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Aïd R., Federico S., Pham H., Villeneuve B. (2015), Explicit investment rules with time-to-build and uncertainty, Journal of Economic Dynamics and Control, 51, p. 240â256
We establish explicit socially optimal rules for an irreversible investment decision with time-to-build and uncertainty. Assuming a price sensitive demand function with a random intercept, we provide comparative statics and economic interpretations for three models of demand (arithmetic Brownian, geometric Brownian, and the Cox-Ingersoll-Ross). Committed capacity, that is, the installed capacity plus the investment in the pipeline, must never drop below the best predictor of future demand, minus two biases. The discounting bias takes into account the fact that investment is paid upfront for future use; the precautionary bias multiplies a type of risk aversion index by the local volatility. Relying on the analytical forms, we discuss in detail the economic effects. For example, the impact of volatility on the optimal investment is negligible in some cases. It vanishes in the CIR model for long delays, and in the GBM model for high discount rates
Villeneuve B. (2014), Recherches sur la financiarisation des marchés de matières premières, Revue banque, 778bis
Les marchés de matières premières sont marqués par deux principales tendances : la modification de leur organisation industrielle et leur financiarisation. Mais celles-ci s'intègrent elles-mêmes dans des bouleversements économiques, comme la mondialisation des échanges et la montée des incertitudes macroéconomiques. L'identification de facteurs causaux devient alors difficile et si la réglementation est indispensable pour éviter les dérives, les propositions doivent être informées et prudentes.
Villeneuve B. (2014), Mortgage life insurance: a rationale for a time limit in switching rights, Mathematics and Financial Economics, 8, 4, p. 473-487
I examine competition in the sector of mortgage life insurance, in particular the periodic switching right (PSR), by which the borrower can change his insurer once every period (say, every year). The PSR is likely to have pro competitive effects (lower premium), but by the same move, to lead to excessive segmentation. The main theoretical prediction of the PSR is that, in equilibrium, everyone will pay every year a premium reflecting his current risk, meaning that the risk of future risk evolution is not covered. This destruction of insurance is appreciated negatively by consumers. The trade-off is between, on the one hand, a lower price for insurance, and on the other hand, a lower quality of insurance. I simulate the cost of the PSR and find about 5-15 % of the total insurance cost. This order of magnitude is slightly smaller than the benefit one can expect from increased competition. All in all, a switching right limited in time would bring the benefits of competition and avoid most of the cost of segmentation.
Villeneuve B., Creti A. (2013), Commodity storage with durable shocks : A simple Markovian model, Mathematics and Financial Economics, 7, 4
We model an economy that alternates randomly between abundance and scarcity episodes. We develop an original method to characterize in detail the structure of the Markovian competitive equilibrium. Accumulation and drainage of stocks are the main focuses. Economically appealing comparative statics results are proved. We also characterize stationary distribution of states. We extend the model to discuss price stabilization policies, injection and release costs, and limited storage capacity. Overall, the analysis delineates the notion of "flexible economy".
Villeneuve B. (2013), Optimal storage and disposal management for long-lived radioactive waste under capacity constraints, Revue économique, 64, 4, p. 635-649
L'article modélise un programme de gestion de déchets nucléaires à haute activité. La physique du refroidissement permet d'entreposer un certain temps un colis chaud afin d'économiser le volume de stockage définitif : en effet, les colis plus froids peuvent être davantage serrés. La durée optimale théorique d'entreposage sans contrainte est caractérisée. Les diverses contraintes (contrainte sur la capacité de stockage, contrainte sur la durée d'entreposage, contrainte sur la capacité d'entreposage) sont envisagées. Elles conduisent à des traitements très différenciés selon les millésimes.
The paper models a program of high-activity nuclear-waste management. The physics of cooling incites to store hot waste for a while to spare scarce disposal volume: indeed, colder parcels may be put in tighter conditions. The optimal unconstrained duration of storage is characterized. Various constraints (on disposal capacity, on the length of storage, on storage capacity) are considered. They all lead to contrasted strategies depending on vintage.
Villeneuve B., Zhang V. (2013), Industry Restructuring: A Case for Affirmative Action, Annales d'Economie et de Statistique, 109, p. 179
Nous analysons les enjeux d'une réforme structurelle radicale unique dans un secteur capitalistique. Une structure est modélisée par (1) un partage du capital productif à un moment donné et (2) un partage de sites rares ou de tout autre actif non-reproductible. Ces deux dimensions illustrent l'importance d'une théorie dynamique dans laquelle les concurrents diffèrent sur plusieurs plans. Bien que l'égalisation des conditions initiales et des droits soit théoriquement optimale, des contraintes réalistes obligent à des solutions de second rang. La discrimination positive est la politique qui reconnaît que, sous certaines conditions, aider les plus désavantagés est le plus avantageux socialement.
We analyze the trade-off faced by authorities envisaging a one-shot structural re-form in a capitalistic industry. A structure is modeled as (1) a sharing of productive capital at some time and (2) a sharing of scarce sites or any other non-reproducible assets. These two distinct dimensions of policy illustrate the importance of a dy-namic theory in which firms durably differ in several respects. Though equalization of endowments and rights is theoretically optimal, realistic constraints force com-petition authorities to adopt second-best solutions. Affirmative action here is the policy that recognizes the fact that, under certain circumstances, helping the dis-advantaged contributes maximally to social surplus.
Villeneuve B., Bommier A. (2012), Risk Aversion and the Value of Risk to Life, The Journal of Risk and Insurance, 79, 1, p. 77-104
The standard literature on the value of life relies on Yaari's (1965) model, which includes an implicit assumption of risk neutrality with respect to life duration. To overpass this limitation, we extend the theory to a simple variety of nonadditively separable preferences. The enlargement we propose is relevant for the evaluation of life-saving programs: current practice, we estimate, puts too little weight on mortality risk reduction of the young. Our correction exceeds in magnitude that introduced by the switch from the notion of number of lives saved to the notion of years of life saved.
Chaton C., Creti A., Villeneuve B. (2009), Storage and security of supply in the medium run, Resource and Energy Economics, 31, 1, p. 24-38
This paper analyzes the role of private storage in a market for a commodity (e.g. natural gas) whose supply is subject to the threat of an irreversible disruption. We focus on the medium term in which seasonality of demand and exhaustibility can be neglected. We characterize the price and inventory dynamics (accumulation, drainage and limit stocks) in a competitive equilibrium with rational expectations. We show the robustness of our results to alternative scenarios in which either a disruption has finite duration or the crisis is foreseen. During the crisis consumers may put pressure on the Government to intervene, but too severe antispeculative measures would inefficiently discourage storage. Practical solutions to this dilemma cause welfare losses that we characterize and quantify.
Chaton C., Creti A., Villeneuve B. (2009), Gas Storage and Security of Supply in the Medium Run, Resource and Energy Economics, 31, 1, p. 24-38
This paper analyzes the role of private storage in a market for a commodity (e.g. natural gas) whose supply is subject to the threat of an irreversible disruption. We focus on the medium term in which seasonality of demand and exhaustibility can be neglected. We characterize the price and inventory dynamics (accumulation, drainage and limit stocks) in a competitive equilibrium with rational expectations . We show the robustness of our results to alternative scenarios in which either adisruption has finite duration or the crisis is foreseen. During the crisis consumers may put pressure on the Government to intervene, but too severe antispeculative measures would inefficiently discourage storage. Practical solutions to this dilemma cause welfare losses that we characterize and quantify.
Villeneuve B., Creti A., Chaton C. (2008), Some economics of seasonal gas storage, Energy Policy, 36, 11, p. 4235-4246
We propose a model of seasonal gas markets which is flexible enough to include supply and demand shocks while also considering exhaustibility. The relative performances of alternative policies based on price caps and associated measures or tariffs are discussed. We illustrate with structural estimates on US data how this theory can be used to give insights into the intertemporal incidence of policy instruments.
Barigozzi F., Villeneuve B. (2006), The signaling effect of tax policy, Journal of public economic theory, 8, 4, p. 611-630
The paper focuses on the signaling value of a tax when agents are less informed than the government on the effect of their consumption. The policy making process is analyzed as a game in which the government wants to influence consumers' behaviors through tax policy, consumers being rational and Bayesian. The marginal cost of public funds induces the government to provide biased information to pursue budgetary objectives. We analyze the tax distortion that is required for credibility.
Villeneuve B. (2005), Competition between insurers with superior information, European economic review, 49, 2, p. 321-340
We analyze markets where insurers are better informed about risk than consumers. We show that even competitive markets may result in insufficient information revelation and inefficient insurance coverage. This explains why certain risky consumers remain uninsured and why certain market segments are persistently profitable. We also show robustness to competition in menus or mechanisms. Our analysis of the "contrary of adverse selection" (competition between principals with common value and exclusivity) is suitable for other markets (lawyers, doctors, mechanics, etc.).
Chassagnon A., Villeneuve B. (2005), Partage optimal du risque avec antisélection et perception imparfaite du risque, Canadian journal of economics, 38, 3, p. 955-978
Cet article examine en détail les allocations d'assurance de second-rang dans une économie soumise à l'antisélection. Partant d'une extension naturelle du modèle classique, nous supposons une perception imparfaite du risque. Nous caractérisons les contraintes qui s'exercent sur la redistribution des richesses et nous résumons les différentes possibilités grâce aux notions d'antisélection faible et d'antisélection forte. Pour finir, nous montrons en quel sens l'amélioration de la perception du risque améliore le bien-être.
The present paper thoroughly explores second-best efficient allocations in an insurance economy with adverse selection. We start with a natural extension of the classical model, assuming less than perfect risk perception. We characterize the constraints on efficient redistribution, and we summarize the incidence of incentives on the economy with the notions of weak and strong adverse selection. Finally, we show in what sense improving risk perception enhances welfare.
Jeleva M., Villeneuve B. (2004), Insurance contracts with imprecise probabilities and adverse selection, Economic theory, 23, 4, p. 777-794
This article deals with optimal insurance contracts in the framework of imprecise probabilities and adverse selection. Agents differ not only in the objective risk they face but also in the perception of risk. In monopoly, a range of configurations that VNM preferences preclude appears: a pooling contract may be optimal, incomplete coverage may be offered to high risks, low risks may be better covered.
Creti A., Villeneuve B. (2004), Long-term contracts and take-or-pay clauses in natural gas Markets, Energy Studies Review, 13, 1, p. 75-94
This paper surveys the existing theoretical and empirical research on long term contracts inspired by the American experience. We analyze the role of take-or-pay clauses and price indexation rules, questioning whether regulation distorts optimal contract duration. The models we summarize allows us to discuss the economic fundamentals of the ED provisions on long-term contracts in the natural gas industry, pointing out that the ED position on long-term contracting seems to mix up contract duration and flexibility.
Villeneuve B. (2003), Mandatory pensions and the intensity of adverse selection in life insurance markets, The Journal of risk and insurance, 70, 3, p. 527-548
This article examines the impact of varying mandatory pensions on saving, life insurance, and annuity markets in an adverse selection economy. Under reasonable restrictions, we find unambiguous effects on market size, participation rates, and equilibrium prices. The degree of adverse selection, whether a market is active or inactive, and social welfare are analyzed.
Villeneuve B. (2003), Competitive insurance markets with multidimensional adverse selection, Annales d'Economie et de Statistique, 69, p. 119-142
Le modèle standard de concurrence avec antisélection en assurance (Rothschild et Stiglitz) suppose que les types ne diffèrent que par leur probabilité d'accident. Supposant qu'ils puissent aussi différer par leur attitude face au risque, nous mettons en évidence des configurations inhabituelles : des équilibres multiples ; des profits strictement positifs ; de l'assurance aléatoire. Nous caractérisons les différents régimes d'équilibre possibles et analysons les paramètres qui les déterminent.
In the Rothschild and Stiglitz model, assuming differences in risk aversions may lead to unusual equilibrium configurations like multiple equilibria, equilibrium positive profits, or random contracts. We characterize the various types of equilibria and give results on the determinants of the equilibrium regime.We conclude with a few remarks on classical equilibrium concepts in insurance economics, and we suggest policy implications.
Creti A., Villeneuve B. (2003), Energy policy : Strategic aspects of the supply issue, Economie et Prévision, 158, p. 73-88
Nous traitons des fondements de la fiscalité de l'énergie dans une perspective d'optimisation des approvisionnements auprès de fournisseurs étrangers à la Communauté européenne. Notre modèle permet de distinguer et d'évaluer trois termes formant la taxe optimale : le terme strictement budgétaire, le terme environnemental et le terme stratégique. Les valeurs dépendent de données technologiques (production) et des valeurs des usages (consommation), mais également du rapport de force entre la Communauté et ses fournisseurs. Nous pouvons, à partir des discussions fondées sur les scénarios proposés, suggérer des améliorations de la politique énergétique.
This article treats energy taxation principles in the light of the need to optimise supply by non-EU suppliers. Our model distinguishes and evaluates the three terms of an optimum tax: budget, environment and strategy. Their values depend on technological data (output) and habits (consumption) as well as the balance of power between the Community and its suppliers. The proposed scenarios can be used to discuss and suggest improvements in the energy policy.
Koehl P-F., Villeneuve B. (2002), Compensation for what ? An analysis of insurance strategies for repairable assets, Journal of Risk and Uncertainty, 25, 1, p. 47-64
We define a repairable asset as an irreplaceable commodity whose quality is at risk, but can be partly restored at a cost. Examples are houses, automobiles and, especially, health, for which standard monetary approaches are oversimplified. To optimize the value of insurance, the insurer and the insured have to agree upon repair strategies (when to fix the asset and how much) and compensation rules (how much money to receive for other goods). We clarify the role of the consumer's preferences in the properties of the contract, and we highlight the relationship between repair strategies and the super- or submodular structure of the repair technology.
Koehl P-F., Villeneuve B. (2001), Complementarity and Substituability in Multiple-Risk Insurance Markets, International economic review, 42, 1, p. 245-266
We study imperfect competition between insurers in a multiple-risk environment. In the absence of asymmetric information, equilibria are efficient, and we determine the degrees of specialization under which the specialized insurers are able or unable to capture the surplus. We show in contrast that under adverse selection, specialization systematically prevents second-best efficiency. Concluding on the role of our notions of strategic complementarity/substituability on the tradeoff between efficiency and fairness of the allocation, we give indications on the desirable structure of the insurance industry.
Villeneuve B. (2000), The consequences for a monopolistic insurance firm of evaluating risk better than customers : The adverse selection hypothesis reversed, The Geneva Risk and Insurance Review, 25, p. 65-79
This article models a situation in which a monopolistic insurer evaluates risk better than its customers. The resulting equilibrium allocations are compared to the consequences of the standard adverse selection hypothesis. On the positive side, they exhibit the property that low-risk people are better covered than higher-risk people. On the normative side, the article shows that there are two reasons for avoiding excessive risk classification: one is the classical destruction of insurance possibilities, and the other comes from the distrustful atmosphere generated by new asymmetric information.
Villeneuve B. (1998), Informed Insurance Monopoly and Risk Discrimination, Revue Economique, 49, 3, p. 821-829
Monopole d'assurance informé et discrimination des risques Nous modélisons une situation où le monopole d'assurance sait mieux estimer les risques que les assurés eux-mêmes. Nous donnons une caractérisation complète des équilibres de ce jeu de signaux multidimensionnels. Nous les comparons avec les prédictions des modèles classiques d'antisélection. Nous faisons une analyse de la valeur de l'information lorsque la discrimination est permise.
Informed insurance monopoly and risk discrimination We model a situation where a monopolistic insurer is better at evaluating riskiness than the policyholders. We characterize the equilibria of the corresponding multidimensional signaling game. We compare the predictions with those of adverse selection models. We give results on the value of information when discrimination is allowed.
Grislain-Letrémy C., Villeneuve B. (2012), Risques, assurances et valeur foncière, in Mongin P. (dir.), Les risques majeurs et l'action publique. Rapport du Conseil d'Analyse économique, Paris, La Documentation française, p. 352
Creti A., Villeneuve B. (2009), Gas storage and security of Supply, in Creti A. (eds), The Economics of natural gas storage, Berlin, Springer, p. 85-112
Villeneuve B. (2000), Life Insurance, in Dionne G. (eds), Handbook of Insurance, Boston, Kluwer Academic Publishers, p. 901-932
This survey reviews the micro-economic foundations of the analysis of life insurance markets. The first part outlines a simple theory of insurance needs based on the life-cycle hypothesis. The second part builds on contract theory to expose the main issues in life insurance design within a unified framework. We investigate how much flexibility is desirable. Flexibility is needed to accommodate changing tastes and objectives, but it also gives way to opportunistic behaviors from the part of the insurers and the insured. Many typical features of actual life insurance contracts can be considered the equilibrium outcome of this trade-off.
Villeneuve B., Lautier D., Ekeland I. (2014), Speculation in commodity futures markets: A simple equilibrium model, séminaire Hotelling (RITM - ENS CACHAN), Cachan, France
We propose a simple and yet comprehensive equilibrium model of the interaction between the physical and the derivative markets of a commodity. To represent all basic economic functions, we take three types of agents: industrial processors, inventory holders and speculators. Only the two first of them operate in the physical market. All of them, however, may initiate a position in the paper market, for hedging and/or speculation purposes. First, we give the necessary and sufficient conditions on the fundamentals of this economy for a rational expectations equilibrium to exist and we show that it is unique. Second, we propose a generalized framework for the analysis of price relationships: the model exhibits a surprising variety of behaviors at equilibrium which connects the normal backwardation theory and the storage theory. Third, the model addresses the regulatory issues of speculators' presence in the market and their influence on prices
Ekeland I., Lautier D., Villeneuve B. (2013), A simple equilibrium model for a commodity market with spot trades and futures contracts, 30th International French Finance Association Conference, Lyon, France
We propose a simple equilibrium model, where the physical and the derivative markets of the commodity interact. There are three types of agents: industrial pro- cessors, inventory holders and speculators. Only the two first of them operate in the physical market. All of them, however, may initiate a position in the paper market, for hedging and/or speculation purposes. We give the necessary and sufficient con- ditions on the fundamentals of this economy for a rational expectations equilibrium to exist and we show that it is unique. This is the first contribution of the paper. Our model exhibits a surprising variety of behaviours at equilibrium, and our second contribution is that the paper offers a unique generalized framework for the analysis of price relationships. The model indeed allows for the generalization of hedging pressure theory, and it shows how this theory is connected to the storage theory. Meanwhile, it allows to study simultaneously the two main economic functions of derivative markets: hedging and price discovery. In its third contribution, through the distinction between the utility of speculation and that of hedging, the model illustrates the interest of a derivatives market in terms of the welfare of the agents.
Villeneuve B., Sicsic P. (1993), L'Afflux de l'or en France de 1928 à 1934, Colloque Franc - CHEFF, Paris, France
Villeneuve B., Yanhua Zhang V. (2011), Merger Remedies and Industry Restructuring: A Case for Affirmative Action,, Paris, Université Paris-Dauphine, 24
We analyze the trade-off faced by competition authorities envisaging a one-shot structural reform in a capitalistic industry. A structure is (1) a sharing of productive capital at some time and (2) a sharing of sites or any other non-reproducible assets. The latter represent opportunities. These two distinct dimensions of policy illustrate the importance of a dynamic theory in which firms may differ in several respects. Though equalization of endowments and rights is theoretically optimal, realistic constraints force competition authorities to adopt second-best solutions. Affirmative action here appears to explain why helping the disadvantaged contributes maximally to social surplus.
Villeneuve B., Durand-Viel L. (2011), Strategic Capacity Investment under Holdup Threats: The Role of Contract Length and Width,, Paris, Université Paris-Dauphine, 23
This article analyzes the impact of the length of incomplete contracts on investment and surplus sharing. In the bilateral relationship explored, the seller controls the input and the buyer invests. With two-part tariffs, the length of the contract is irrelevant: surplus is maximal and goes all to the seller. If total surplus is targeted, or if sellers are left free, contracts will be as short as possible. If regulators want to favor buyers, prohibibiting nonlinear pricing and forcing long contracts are the best solutions. The interaction of a restriction (width) with another (length) is explained in detail.
Grislain-Letrémy C., Villeneuve B. (2011), Natural and Industrial Disasters : Land Use and Insurance, Cahiers de la Chaire Finance et Développement Durable, Paris, Université Paris-Dauphine, 29
Urbanization in exposed areas increases the cost of disasters. For industrial risks, potential victims raise firms' liabilities. For natural risks, overexposure by some undermines mutualization. Land use policy (particularly exclusion zones) and insurance shape urbanization, but their efficiency is limited by hazard-map precision. Map-based discrimination being politically sensitive, we identify an operation of map redrawing that increases the welfare of all. Climate change and population growth increase risk. We exhibit realistic cases where exclusion zones shrink as risk rises. We disentangle the competing effects at play. Results are established for alternative distributions of bargaining power between households, mayor and firm.
Villeneuve B., Creti A. (2007), Equilibrium Storage in a Markov Economy, Cahiers de la Chaire Finance et Développement Durable, Paris, Université Paris-Dauphine, 33
We model an economy that alternates randomly between abundance and scarcity episodes. We develop an original method to characterize in detail the structure of the Markovian competitive equilibrium. Accumulation and drainage of stocks are the main focuses. Economically appealing comparative statics results are proved. We also characterize stationary distribution of states. We extend the model to discuss price stabilization policies, injection and release costs, and limited storage capacity. Overall, the analysis delineates the notion of "flexible economy."
Villeneuve B., Creti A., Chaton C. (2005), The Economics of Seasonal Gas Storage, Série des Documents de Travail du CREST, Malakoff, INSEE, 33
Nous proposons un modèle saisonnier du marché du gaz naturel. L'approche est assez flexible pour nous permettre d'incorporer des chocs d'offre ou de demande tout en tenant compte du caractère épuisable du gaz. A partir de données américaines, nous estimons le modèle structurel et testons les restrictions théoriques. Nous employons ces résultats pour évaluer les politiques de prix ou de quantités (prix plafonds, taxes douanières, subventions croisées)
We propose a model of seasonal gas markets which is flexible enough to include supply and demand shocks while also considering natural gas as an exhaustible resource. Using US data, we estimate the model's structural parameters and test economically founded restrictions. We analyze, theoretically and using the estimates, the impact of policies (price caps, tariffs, cross subsidies) on prices and quantities consumed or stored. This evaluation gives insights into past or envisaged public interventions.