Franz Wirl

• Professor (Full) at University of Vienna

Although the possibility of multiple nonlinear equilibria in linear-quadratic differential games is extensively discussed, the literature on models with multiple linear Markov perfect equilibria (LMPEs) is scarce. Indeed, almost all papers confined to a single state (the vast majority of the application of differential games to economic problems) f...

While hundreds of papers study the strategic interactions of oligopolists facing sticky prices only very few treat the in my opinion more important and opposite case of sticky or sluggish demand and supply, e.g., for energy. This point was taken up in Wirl (Int J Ind Organ 28:220–229, 2010) but unfortunately, the computation of the linear Markov pe...

Both global warming and growing oil scarcity call for a transition to renewable energies. EU has adopted policies for a fast transition to renewable energies. On the other hand, many FSU countries are net exporters of hydrocarbons today. This paper shows the problems of fast transition to renewable energy with a description of the general problems...

This paper addresses how a Leviathan government taxes income if the earning potential is private information. This complements the normative analyses in the tradition of Mirrlees (1971). Taxes increase with respect to earning (potential and actual since taxation lowers observed earnings). However, accounting for the agent’s private information, ave...

This paper describes the process of capital accumulation subject to the following characteristics: (i) convex returns to (human) capital and (ii) the need to self-finance investments. Our setup is applicable to some peculiarities in the arts, sports and science, inter alia, coined the Matthew effect in Merton (1968) and explains, e.g., why prominen...

This paper surveys normative and positive arguments on why oil and gas exporting countries, in particular OPEC members, may expand into downstream industries (e.g. refining, petrochemicals), instead of exporting raw materials. Indeed, local refining can serve as a partial hedge against the vagaries of the oil price. Furthermore, as downstream activ...

We consider how the growth of total factor productivity (TFP) was affected by R&D, trade, information and communication technology, and catching-up for the period from 1990 to 2006. Our contributions are: Firstly, to decompose TFP growth into two distinct measures for catching-up and for innovation using the Malmquist index; secondly, to update rel...

Leaders are role models that affect their employees’ efforts. The effect depends on how much an employee identifies with the “boss”. Since this degree of identification is private information of the employee, additional financial incentives must be provided. Therefore, we study a principal-agent problem in which the principal affects the agent’s ef...

Saint Thomas Aquinus ’agen autem non movet nisi ex intentione finis (an agent does not move except out of intention for an end, quoted from Nassim Nicholas Taleb, Antifragile, p. 169.)’. This paper uses the familiar multitasking framework in order to compare contracting with agents holding private information either about their work ethic or intrin...

This paper models scientific productivity and reward, as well as the emergence and dynamics of new scientific fields. The crucial features are the individual reward that depends in addition on own abilities and the collective knowledge of a field. The overall knowledge about a field leads to increasing, at low levels (i.e., at the beginning) and at...

This is one of the first papers that links population growth, education, and institutional change within a dynamic optimization. The basic premise is, following interesting papers of Boucekkine with different co-authors dealing with the Arab Spring, that elites manage first the ruling and then the transition to a ‘democratic’ government. We are les...

This paper addresses the spatial evolution of countries accounting for economics, geography and (military) force. Economic activity is spatially distributed following the AK model with the output being split into consumption, investment, transport costs and military (for defense and expansion). The emperor controls the military force subject to the...

We investigate intertemporal strategic interactions if monopolies, cartels or oligopolies benefit from firm internal as well as external learning by doing. Incorporating externalities is necessary, yet so far neglected in both theoretical and empirical studies, which commonly relate cost degressions to total cumulative output. The analysis is carri...

Saint Thomas Aquinus 'agen autem non movet nisi ex inten-tione finis (an agent does not move except out of intention for an end, quoted from Nassim Nicholas Taleb, Antifragile, p169.)'. This paper uses the familiar multitasking framework in order to compare contracting with agents holding private information either about their work ethic or intrins...

This is one of the first papers that links population growth, education and institutional change within a dynamic optimization. The basic premise is, following interesting papers of Boucekkine with different coauthors dealing with the Arab Spring, that elites manage first the ruling and then the transition to a 'democratic' government. We are less...

The paper describes the process of capital accumulation subject to the following characteristics: (i) convex returns to (human) capital; (ii) the need to self-finance the investment. This setup is applicable to explain some peculiarities in arts, sports and science, inter alia, the "Matthew effect" coined in Merton (1968) to explain why prominent r...

This paper models scientific productivity and reward, as well as the emergence and dynamics of a new scientific fields. The crucial features are the individual reward that depends in addition on own abilities and the collective knowledge of a field. The overall knowledge about a field leads to increasing, at low levels (i.e., at the beginning) and...

This paper addresses the spatial evolution of countries accounting for economics, geography and (military) force. Economic activity is spatially distributed following the AK model with the output being split into consumption, investment, transport costs and military (for defense and expansion). The emperor controls the military force subject to the...

This paper investigates the implicit subsidization of refined products in oil and gas exporting countries. Most of these countries, as well as some other countries (mostly developing countries, but one could argue that US gasoline prices do not account for external costs), distribute large subsidies. Subsidies that are offered for a long period, ar...

Oil prices are crucial for a wide area of economic decisions ranging from households over business to economic policymaking. Therefore, oil price projections are a crucial input to economic models and to economic activity forecasts. This paper assesses the accuracy and efficiency of crude oil price forecasts published by different organisations, th...

This paper assesses the Willingness to Pay (WTP) for a publicly provided bike sharing service whose costs are in large part covered by the municipality of Vienna, Austria. The following characteristics render it valuable for analyses: the possibility to free ride, a (perceived) positive externality of use, negligible income effects, perfect substit...

Since 2009, natural gas markets are characterized by large spreads in liquefied natural gas (LNG) prices between the United States (Henry hub) and Europe and Japan. Moreover these differences are forecasted to persist (at a lower level but still above transport costs) against the law of one price. This paper explores this persistence of apparent ar...

The development of high voltage grid is an important component for energy security. Its insufficient capacity can result in a bottleneck congestion and inability to react on extreme situations like natural disasters. It can also generate crises similar to Californian (2000). Moving to sustainable energy supply in future requires higher penetration...

Apple’s choice of the agency model (i.e., Apple demands a share from the retail price set by the publishers) when entering the e-book market was surprising because: (i) the upstream firms can accrue all rents in a simultaneous move game if it determines the retail price; and (ii) the incumbent, Amazon, used wholesale pricing arrangements. This pape...

Moving to sustainable energy supply in future requires higher penetration of wind energy with very uncertain and spatially heterogeneous supply. This requires balancing of wind with other energy sources. High wind penetration (above 20%) will make this problematic unless wind is partly balanced with itself. This will require regional integration b...

In this paper, we investigate the drivers and obstacles to switch the electricity supplier for Austrian households. Since the liberalization of the market in 2001, the annual switching rates have remained at surprisingly low levels, leading to a loss of significant savings potential for Austrian households. The results of our exploratory study sugg...

Countries often have private information about their willingness to pay for protecting the climate system. We use a principal-agent model to reexamine the economic case for unilateral action by individual countries, in our case of the principal. We find that the incentive structure that arises in an incomplete information framework may lead to a mo...

In recent years, increases in fossil fuel consumption, along with associated resource limitations, high prices, and growing concern about climate change, have led to initiatives in favor of expanding renewable energy use. This study addresses several issues. Firstly, we review drivers and obstacles that the biofuel industry faces. Secondly, the cur...

Iran’s nuclear power program is conceived as a dangerous addition to the already highly explosive situation in the Middle East. This paper proposes a game theoretic model between Iran (to side step the non-proliferation treaty) and the West (imposing sanctions). Our analysis suggests that it requires substantial benefits (a ‘carrot’) offered by the...

The economics of art and science differs from other branches by the small role of material inputs and the large role of given talent and access to markets. E.g., an African violinist lacks the audience ( = market) to appreciate her talent unless it is so large that it transgresses regional constraints; conversely, a European violinist of equal tale...

Road transport, especially passenger car transport, is one of the largest contributors to greenhouse gas emissions. The major elements of the strategy of the European Union (EU) in order to reduce car emissions—such as CO2 emission regulations from new passenger cars, vehicle-related fiscal measures and fuel economy labelling—have not resulted in s...

This paper considers a finite number of agents populating Krugman’s (1991) labor market. The objective is to investigate whether the much emphasized indeterminate outcome is due to the assumption of uncountable many agents, each of measure 0. It is shown that this result extends to n players each with strategic leverage if the social reference incl...

This note uses the framework of Martimort and Sand-Zantmann (2013, 2015) about international environmental agreements. The objective is to demonstrate how a shift of private information from cost to benefit affects contracts and permit market outcomes although this seemingly ad hoc choice has no effect outside contracts and absent market interventi...

Regional LNG markets are characterized by substantial price differences since 2009. These regional differentials in prices suggest arbitrage possibilities which are incompatible with functioning markets; this creates a puzzle. This paper seeks to explain this puzzle by investigating potential explanations ranging from transport costs, bottlenecks i...

Regional LNG markets are characterized by substantial price differences since 2009. These regional differentials in prices suggest arbitrage possibilities which are incompatible with functioning markets; this creates a puzzle. This paper seeks to explain this puzzle by investigating potential explanations ranging from transport costs, bottlenecks i...

This paper investigates the different terms of strategic interactions (non-cooperative, simultaneous move): wholesale versus retail pricing—between Bertrand competing retailers and an upstream oligopoly. The crucial extension is that retailers can play a significant role and this can turn conventional wisdom upside down, e.g.: retail competition ne...

This paper investigates the consequences of endogenous discounting related to a stock externality, like 'global warming'. This topic is of interest, especially since the Stern report and the ensuing public and academic debate have made clear how crucial discounting is for evaluating anti-global warming measures. We investigate the consequences of t...

This paper analyzes the impact of new fuel technologies in connection with emission standards on public transport emissions as a basis for traffic planner’s decision making in Padua (Italy) in the period of time before construction works for the introduction of a tram network was planned. After analyzing the public and private transport system in t...

Just a few years ago, everybody was forecasting the expansion of natural gas consumption in EU and the necessity to increase gas imports due to decline in EU gas production. This strategy was justified by the necessity to fulfill EU objective 20-20-20 due to the fact that coal-gas substitution was a cheaper option to reduce CO2 emissions comparin...

This paper models dynamic interactions between talent and its market. The economics of art and science differs from other branches, by the small role of material inputs and the large role of market accessibility. E.g., an author requires access to (potential) readers as a complement to his productive capital. We study the problem of optimal inves...

Energy efficiency is an objective of public interventions at least since the Public Utility Regulatory Policy Act of 1978 (PURPA). Recently, conservation has received considerable attention in the United States and in particular in the European Union but this time in order to mitigate global warming. Policy measures include regulations at the techn...

Due to high transport cost share in the final price of natural gas, there is no unique world price for it. Cost saving on transportation creates monopoly in transit and allow for transit games. This makes geopolitical aspect natural for gas. The paper analyses recently growing role of geopolitics for natural gas markets in Europe.

This paper analyzes the optimal strategy of a monopoly facing stochastic and dynamic demand and choosing a Cournot-type strategy, more precisely, adjusting its output. This investigation is motivated by the decisions of OPEC to adjust its output and by the again high and volatile oil prices. The oil market characteristics - uncertainty, dynamic and...

This Handbook analyzes the macroeconomics of global warming, especially the economics of possible preventative measures, various policy changes, and potential effects of climate change on developing and developed nations.

This paper investigates the prospects of renewable energy from an economic point of view and presents a few economic models that address specific issues. Although the transition to renewable energy is inevitable given the threats the world faces when avoiding that, the path is not so simple and is definitely cannot be driven by only market forces....

Both the threat of global warming and peak oil drive the transition to renewable energies. While EU policy targets of 20-20-20 are correct and feasible, the transition brings high extra cost. One is related to very high subsidies on renewable energies instead of subsidizing R&D on their cost reduction. Another is dysfunction of natural gas plants i...

This paper investigates whether an incumbent has an incentive to introduce corporate social responsibility (CSR) activities only as a response to entry by a competitor, i.e., the incumbent would eschew CSR if left uncontested. We assume that the entrant cannot provide CSR at least at the outset for two reasons: (1) it would not be credible due to i...

T. C. Schelling [Micromotives and macrobehavior. New York: W. W. Norton & Co. (1978)] suggested a simple binary choice model to explain the variation of corruption levels across societies. His basic idea was that the expected profitability of engaging in corruption depends on its prevalence. The key result of the so-called Schelling diagram is the...

This paper investigates the different terms of interactions - wholesale versus retail pricing - between Bertrand competing retailers and an upstream oligopoly. This question is motivated by the competition in the e-book market between Amazon and Apple. Amazon paid wholesale prices while Apple receives a share of the retail price fixed by the upstre...

We consider contracting of a principal with an agent if multilateral externalities are present. The motivating example is that of an international climate agreement given private information about the willingness-to-pay (WTP) for emissions abatement. Due to multilateral externalities the principal uses her own emissions besides subsidies to incenti...

This paper investigates the intertemporal monopolistic supply of a clean technology and addresses the following questions: How does the lack of governments to commit restrict the incentives and thereby the supply of clean technologies? Are either emission taxes or emission permits better suited in such a dynamic setting? Although the monopoly can b...

This paper investigates dynamic and strategic (oligopolistic) interactions with respect to their corporate social responsibility (CSR) activities. In order to separate dynamic from strategic effects, the paper proposes a differential game and derives the open loop and Markov perfect Nash equlibria with the cooperative solution as benchmark. The Mar...

This paper characterizes continuous Markov perfect equilibria as smooth connections between an ‘initial’, i.e., at the origin of the state space, and an ‘end’ manifold that result from patching with the boundary solution. The major result is that multiple equilibria require a non-monotonic initial manifold. This necessary condition for multiple equ...

Motivated by the recent switching between “low” oil prices and “high” oil prices, this paper provides an economic explanation for oil price volatility. Given the characteristics of the oil market—sluggish, concave, and uncertain demand, as well as noncompetitive players—the corresponding profit maximizing strategy is to switch between a low price a...

This paper addresses modeling of competition and decisions about investment in infrastructure in an uncertain environment coming both economics and geopolitics. Similar consideration of geopolitical games has been presented by Yegorov and Wirl (2010b), but for the case of natural gas. Geopolitical uncertainty suppresses investment in new infrastruc...

The main aim of the paper is the estimation of regional and environmental values capitalized in the wine market. By means of hedonic regression analysis, possible premiums attached to nonmarket characteristics such as geographical designations and regional qualities are deferred from the Austrian wine market prices. Moreover, the relation between l...

This paper compares three different legal means—no environmental policy (the pollutee pays), full liability (the polluter pays), and pollution standards—to reduce and regulate neighborhood externalities within an incomplete contract framework. It turns out that the relative efficiency of these instruments depends, in general, on details. However, m...

This paper provides a new and surprising reason for growth, namely costs. More precisely, adding adjustment costs of the control to a one-dimensional, strictly concave optimal control problem does not affect the steady state(s). Then, sufficiently high adjustment costs turn an interior and saddle-point stable steady state of the original, one-state...

This paper investigates how firms should plan corporate social responsibility (short CSR). This dynamic analysis starts with a firm's intertemporal optimization problem, and proceeds to analyze interactions with other firms, which are crucial: if CSR is profitable for firm A then it is most likely also profitable for competitors B and C, and these...

This paper investigates rationale explanations of OPEC’s strategies. Accounting for market characteristics in particular the sluggishness of demand and supply allows to explain price jumps as rational OPEC strategies from a narrow economic perspective (up and down) as well as from political objectives (at least up) due to the political payoff from...

This paper considers the optimal phasing of carbon taxes when firms face intertemporal investment decisions. It is shown that the optimal policy is to switch immediately to the Pigouvian carbon tax if firms have rational expectations. If instead firms are myopic, then starting with an even higher tax is necessary to speed up the otherwise too slugg...

This paper focuses on the interdependencies between technical efficiencies and energy demand which are often either treated in isolation or do not get the sufficient attention in the literature. More precisely, this paper uses technical efficiencies as one crucial determinant of energy demand in order to integrate at least two issues that are usual...

In this paper, I investigate how much green polluters mitigate the familiar dynamic “tragedy of the commons” (“global warming”). Green consumers feel penalized (“pain”) for any consumption in excess of the social optimum; this can arise, for example, from Kant’s categorical moral imperative. Interplays among and between green and brown consumers ar...

Classic storage utilisation is mainly based on charging/discharging strategies enabling a power generation company to generate revenues by buying electricity in low-price periods and selling it at higher prices. Within this paper another feasible way to gain arbitrage in storage utilisation is considered: Strategically increasing demand disregardin...

Most investigations of the consequences of environmental policies and Pigouvian taxes (pollution charges,in particular carbon taxes) using CGE models reveal an only modest impact on economic activity; some report even positive economic side effects. Yet the slowdown in economic growth and in particular of productivity,see Conrad and Wastl (1995),su...

This paper investigates whether it is welfare enhancing to tax the output of a monopoly in order to foster cost-inefficient entry. This question is of particular concern in the energy markets dominated by cartel-like affiliations (OPEC and oil, Russia's gas exports to Europe) and the interest and practice to stimulate the development of alternative...

This paper considers externalities and investigates which general properties and respectively their magnitudes induce complex behavior like thresholds and indeterminacy (and cycles). The objective is to obtain general mechanisms within a general setting in order to complement the much advanced but model specific literature. It turns out that these...

As a response to the Russian dominance of the EU's natural gas supplies and the EU's increasing gas demands, major gas pipeline projects are currently under way to enhance the EU's energy supply security. Oftentimes to raise financing and to allocate gas transportation capacities, auctions are carried out to allow gas shippers to book transportatio...

This paper investigates how the choices of the instruments -quan-tities or prices -affects the interactions in a stock externality game (global warming) between fossil fuel suppliers and consumers, both cartelized, e.g. OPEC versus IEA (they have tried both instruments in the past and play currently in quantities). More precisely, the pa-per studie...

1. Price dynamics: the impact of fundamentalists and chartists. The talk will concentrate on fundamental forces 2. Link between oil and gas prices. Attempts of economists to explain oil price dynamics (with reference to recent paper of F. Wirl). Is decomposition of oil and gas prices inevitable? 3. External shocks for gas price (crisis, shale gas i...

We consider how one party can induce another party to join an international emission compact given private information. Due to multilateral externalities the principal uses her own emissions besides subsidies to incentivize the agent. This leads to a number of non-standard features: Optimal contracts can include a boundary part, which is not a copy...

This paper analyses the impacts of the new daily green electricity production forecasting policy by the Austrian Green Electricity Settlement Agency (OEMAG) and the newly introduced seven-day electricity trading mechanism by the European Energy Exchange (EEX) on the Austrian electricity market. By treating these two market policy alterations as nat...

This paper focuses on the dynamic aspects of individual behavior affected by its social embedding, either at large (society-wide norms or averages) or at a local neighborhood. The emphasis is on how initial conditions can affect the long run outcome and to derive, discuss and apply the conditions for such thresholds. For this purpose, intertemporal...

The Russian dominance of the European Union (EU)’s natural gas supplies has put the independence of the EU at risk. This paper presents an evaluation of the Nabucco gas pipeline project—considered by some to be the most economical link to new natural gas sources—to determine whether it would help the EU to diversify its gas supplies in a cost-effec...

This paper derives optimal pricing strategies for nondurables if demand is sluggish and stochastic. The puzzling result is that moving from a static demand to a dynamic relation alters the marketing strategy dramatically if the equilibrium demand is convex (in price): the profit maximizing price policy is to switch between a low and a high price de...

Dieser Aufsatz beschäftigt sich mit der jüngsten Gaskrise, die durch den russischen Stopp der Erdgaseinspeisung in die durch die Ukraine nach Europa führenden Pipelines ausgelöst wurde. Das Ziel dieses Aufsatzes ist es, diese Situation durch Berücksichtigung auch russischer Quellen zu dokumentieren und vor allem Verlustsituation für die beteiligten...

This paper integrates dynamics on the demand and on the supply side, which are characteristic for many goods, in particular fuels, due to costly adjustments. Furthermore, firms often pursue a quantity strategy and decide on output adjustments, additional capacities, etc. instead of fixing prices, e.g., OPEC moved from posting prices to adjusting ou...

Gas is an interesting example in which the market structure cannot be derived from pure economic aspects. Due to huge required investments, substantial transport costs and large heterogeneity in gas deposits and major consumption areas geography is very important. Politics also plays an important role as a restriction to the development of otherwis...

This paper assumes that the decision makers of OPEC (or at least of its core members) are interested in both profits and political payoffs (support, popularity, being a hero of the Arab or Islamic street, etc.). The oil weapon, i.e. a reduction of output is the most powerful instrument to obtain political payoffs from harming the West, which can be...

China is a rising global power with a growing role and impact on the world’s energy markets as well as on the Earth’s climate system. China pursues its development in an essentially non-confrontational manner, a vision encapsulated by the notion of peaceful rise which is viewed positively in the world’s major capitals. Nevertheless, China’s rapid g...

This paper estimates mortality and fertility rates prevailing in Ireland during the 25-year period before the Great Irish Famine of 1845-1849. A technique is developed to estimate the age-specific mortality level during the Famine and the number of Famine-related deaths. The paper concludes that fertility rates were declining during the period 1821...

This paper derives market equilibria (in demand functions and in bidding strategies) between oligopolists and oligopsonists in a market with intermediates and no competition in final markets. To the best of my knowledge, this theme has not been explored, despite two observations: Firstly, the commonly applied framework of non-competitive and compet...

Methodology represents a combination of tools from different branches of economics and social sciences. This paper uses recent analyses of the natural gas markets to survey this crucial market and to emphasize the much neglected aspects of geography and politics. The consequences of geography and politics shaping the global natural gas networks are...

This paper provides a tractable analytical framework to study intertemporal equilibria between non-competitive supply and dynamic demand for non-durable goods. The basic hypothesis is that consumers enjoy utility from particular services rather than from commodities. Consumption of the non-durable good follows a dynamic pattern, because it depends...

Basic economics suggest that prices for scarce interconnector capacity should reflect (if not equal) the arbitrage from trade, i.e., of low cost suppliers selling to a high price country. This paper analyses empirically whether and to what extent cross-border auction prices for interconnectors reflect the whole-sale electricity price differences. T...

This paper is devoted to modeling of growth of gas industry taking into account two possible technologies of gas delivery: via pipeline or LNG. It presents several model specifications that are analyzed using analytical and numerical methods.

The familiar concept of Pigouvian taxes has finally caught the interest of politicians as the various proposals for a pollution tax, often simplified to an energy tax, document. This paper reviews these proposals critically and points at some wrong presumptions. The suggestion to make the polluter liable for all damages is in general inefficient. I...

Russian gas exports play a crucial role in political discussions today. This paper argues that the European strive for energy diversification at present is economically inefficient, given the nearby resources and existing or committed transport network to Russia. Furthermore, this present diversification strategy will put Europe into competition wi...