Abstract: We examine the role that spot markets and physical inventories play in revealing to uninformed traders the expectations of informed traders. Although many papers investigate potential mechanisms by which futures markets may disseminate such information, the role of spot markets has not been examined in comparable detail. Because the incentive for speculative trading in futures contracts stems from the failure of spot markets to eliminate differences in beliefs regarding future market conditions, the scope for speculative trading in the futures market is therefore determined, but also limited, by the extent to which spot market transactions disseminate private information. Using a rational expectations approach, we show that equilibrium differences in beliefs are determined by specific characteristics of the underlying commodity, including storage costs, the amplitude of unexpected demand and supply shocks, the accuracy of information acquired by informed investors, the numbers of informed and uninformed investors, and the elasticity of demand and supply.

Abstract: Over the past several years, labeling schemes that focus on a wide range of environmental and social metrics have proliferated. Although little empirical evidence has been generated with respect to carbon footprint labels, much can be learned from our experience with similar product labels. We first review the theory and evidence on the influence of product labeling on consumer and firm behavior. Next, we consider the role of governments and nongovernmental organizations, concluding that global, multistakeholder organizations have a critical part to play in setting protocols and standards. We argue that it is important to consider the entire life cycle of a product being labeled and develop an international standard for measurement and reporting. Finally, we examine the potential impact of carbon product labeling, discussing methodological and trade challenges and proposing a framework for choosing products best suited for labeling.

Abstract: Researchers using stated preference (SP) techniques have increasingly come to rely on what we call “hypothetical baselines.” By the term “hypothetical baseline,” we mean that respondents are provided with a description of a current state, or baseline, but that this baseline is intentionally not the actual state of environmental quality, health, or other baseline condition. The SP researcher then poses a valuation question or choice task that is contingent, not on the existing status quo, but rather on the state of the world described in this new hypothetical baseline. In this paper, we argue that SP researchers have often used hypothetical baselines without carefully considering the cognitive challenges this poses for respondents or the difficulties this practice creates for advising policy makers. We present a simple typology of four types of SP studies, two of which rely on hypothetical baselines, and give six examples of conditions that an SP researcher may change to create a hypothetical baseline. We discuss four main reasons why SP analysts use hypothetical baselines in their research designs, plus some of the risks associated with the use of hypothetical baselines. Finally, we offer guidance for the use of hypothetical baselines in future SP surveys.