Bertrand Villeneuve

• PhD
• Professor (Full) at Paris Sciences and Letters (PSL) University

Crop insurance is one of the most important protections against climate-related risks for farmers. Despite being heavily subsidized, insurance take-up in France remains surprisingly low. The goal of this paper is twofold; first, we explain this paradox by analyzing the heterogeneous effects of taking up crop insurance, and second, we provide concre...

This R code is for replication and new applications of our method exposed in "Rediscovering Price Discovery" by Lautier, Ling and Villeneuve. The documentation is available too.

(April 2024 version) We clarify the mixed signals from alternative price discovery metrics using VECM estimates. Based on a classical approach--a parametrized structural data-generating process that is fully identified--we rigorously reinterpret standard measures and unveil dead ends. We also suggest the adoption of the Covariance Information Share...

The industrialists are liable for any damage they cause to neighboring households. Consequently, households do not have to pay for the risk they create by locating in exposed areas. A common and efficient self-insurance strategy for the firm is to freeze land, or to negotiate land-use restrictions. When people understand only simple messages about...

We propose a micro-founded equilibrium model to examine the interactions between the physical and the derivative markets of a commodity. This model provides a unifying framework for the hedging pressure and storage theories. The model shows a variety of behaviors at equilibrium that can be used to analyze price relations for any commodity. Further,...

This paper addresses the urbanization of areas exposed to natural disasters and studies its dependency on land-use and insurance policies. In practice, we observe simple policies, consisting of a prohibited red zone and a zone without insurance tariff differentiation. Even if there are fixed damages per dwelling, the red-zone policy is relatively e...

We analyze 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: the surplus is maximal and goes to the seller. In linear contracts, the seller prefers the shorte...

The Prevention of Natural Disasters: Target the Long Run without Delay Urbanization in areas prone to natural hazards is massive and will grow. Economic analysis offers several tools to contain this phenomenon: insurance pricing in relation to risk, and zoning and building standards in exposed areas. Both approaches are theoretically equivalent, bu...

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 cau...

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 predictio...

We establish explicit socially optimal rules for an irreversible investment deci- sion with time-to-build and uncertainty. Assuming a price sensitive demand function with a random intercept, we provide comparative statics and economic interpreta- tions for three models of demand (arithmetic Brownian, geometric Brownian, and the Cox-Ingersoll-Ross)....

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...

Optimal storage and disposal management for long-lived radioactive waste under capacity constraints 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 du...

We propose a comprehensive equilibrium model to examine the interaction between the physical and the derivative markets of a commodity. The model comprises four types of traders: hedgers of future sales and hedgers of future purchases, both of which operate on all markets; speculators who operate only on the futures market; and spot traders. We pro...

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 stor...

In this paper, we propose a simple model of commodity markets, which offers a unified theoretical framework for the analysis of price relationships: it comprises the hedging pressure theory as well as the storage theory, so that hedging and informational functions performed by the derivative market can be simultaneously assessed. We study the simul...

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 effi-ciency is limited by hazard-map precision. Map-based discri...

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 preferences that are not necessarily additively separable. The enlargement we propose is relevant for the evalua...

We analyze the trade-off faced by authorities envis- aging a one-shot structural reform 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 impor- tance of a dynamic theory...

This article analyzes the impact of incomplete contracts’ length on investment in a bilateral relationship. The seller has the power to set the contract terms whereas the buyer decides on the investment level, which acts as a cap on future demand. Two-part tariffs succeed at implementing the optimal investment and consumption even if commitment is l...

Natural gas consumption has seen a fast growth in the European Union over the last decades. It is challenging the supremacy of oil as the leading source of energy and has reached a dominant position in electricity generation. In 2005, about one quarter of the EU primary energy consumption was based on natural gas, and imports from neighboring produ...

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)...

This paper demonstrates that temporal risk aversion makes smoothing consumption over time less attractive, while the usual risk aversion makes it more attractive. As temporal risk aversion increases, the equilibrium interest rate decreases and the equity premium increases. This paper also shows a striking and novel result that an increase in time i...

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 impo...

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...

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...

This paper analyzes the role of storage for economies facing the risk of a gas supply disruption. We characterize the optimal/competitive transitory dynamics (accumulation, drainage and target stock). We partially relax the irreversibility hypothesis, by extending the model in two directions: first, we consider a long but finite duration of the cri...

We study the asymmetric Cournot duopoly game along the capac-ity accumulation path. The industry evolution is modelled via the differential game approach in which investment choices and capacity utilizations are taken as the control variables and capacities are state variables. The asymmetry of costs may be given by nature but it can also be compen...

We model an economy that alternates randomly between abun-dance periods and crises. Shocks affect the excess supply function, meaning that prices and quantities are nontrivially endogenous. Ac-cumulation and utilization of stocks are the main focuses. We de-velop an original method to characterize in detail the structure of the Markovian competitiv...

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 t...

This paper shows the poor capacity of the additively separable life-cycle model to fit empirical values of risk to life. Introducing mortality risk aversion, we significantly improve the predictive power of theory. This theoretical shift is crucial for the evalu- ation of life-saving programs. Current practice, we show, puts too little weight on th...

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 t...

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 th...

There is a widespread presumption among economists that forward trading is socially beneficial. However, it is not always the case in the real world. Here we study the situations where forward trading can enhance competition and where it cannot in the specific field of electricity generation. Especially when we add capacity constraints into the gam...

We propose a model of seasonal gas markets which is flexibleenough to include supply and demand shocks while also consideringnatural gas as an exhaustible resource. Using US data, we estimate themodel’s structural parameters and test economically founded restrictions.We analyze, theoretically and using the estimates, the impactof policies (price ca...

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 prov...

This paper analyzes the role of competitive storage when gas sup-ply is affected by random shocks. We address the issue of reward-ing precautionary gas reserves through lump-sum subsidies paid by the Government to gas storage facilities owners. Finally, we develop a more complex model where the economy goes randomly back and forth into abundance an...

This paper argues for an alternative to the standard model used for interpreting empirical value of statistical lives (VSL). The introduction of risk aversion with respect to the length of life significantly changes the effect of age on VSL. Our estimates suggest that current practice to give an economic value to longevity gains puts too small weig...

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...

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. Le...

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 wel...

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 p...

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. Le...

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...

We study a situation in which government influences consumers' be- haviors by providing both information and incentives. We develop the case of consumption in the presence of uncertainty and external effects. The instruments used by the government are information campaigns and taxes. A difficulty arises because the government would like to bolster...

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 systematic...

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 de...

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 normati...

In many instances where public policy concerning externalities is considered, ensuring an adequate perception of the public is not less important than setting ideal taxes. We show however that public authorities are typically incited to deliver biased information (exaggeration or attenuation) to economize on the coercive instruments. Technically, w...

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 lo...

In the Rothschild—Stiglitz model, assuming differences in risk aversions between risk types leads to unusual equilibrium configurations due to the multidimensional adverse selection: multiple equilibria, positive profits,random insurance contracts may come out. We give necessary and sufficient criteria of comparison of the utility functions for det...

What is left from the debate on state retirement pensions compared to contributory pension schemes ? Over the last couple of years, the debate on state retirement pensions compared to contributory pension schemes has been an issue of major concern in the field of retirement matters. It is beforehand related to an original demographic evidence : wh...

This paper examines the impact of public pensions on saving, life insurance and annuity markets in an adverse selection economy.

An individual confronts multiple risks she insures by independent specialized monopolies. Though the individual does not act strategically, the indirect competition between monopolies can leave her with part of the surplus. This is the case if her global risk premium is lower than the sum of premia for insuring each risk at once. We prove that a ut...

We study the asymmetric Cournot duopoly game along the capacity accumu- lation path. The industry evolution is modelled via the differential game approach in which investment choices and capacity utilizations are taken as control variables and capacities are state variables. The asymmetry of costs may be given by nature but it can also be compensat...

This paper analyzes the role of storage for economies facing the risk of a gas supply disruption. We characterize the optimal/competitive transitory dynamics (accumulation, drainage and target stock). We show that the lack of protection of property rights, e.g. antispecula- tion measures, is likely to discourage storage completely. Responsible poli...

We study the asymmetric duopoly game of industry evolution along the ca- pacity accumulation path by using the dierential game approach. Investment choices and capacity utilizations are taken as the control variables. Capacity choices are state variables. In closed-loop equilibrium, multiple equilibria might exist and vary with respect to the conje...

The present paper thoroughly explores second-best efficient allocations in an adverse selection insurance economy. We start from a natural extension of the classical model, assumer less than perfect risk perceptions. We propose first and second welfare theorems, by means of which we describe efficiency-enhancing policies. Notions of weak and strong...