Tunç Durmaz | Yildiz Technical University (original) (raw)

Papers by Tunç Durmaz

Research paper thumbnail of AI Revolution and Coordination Failure

This paper analyzes theoretically and empirically the coordination failure problem inherent withi... more This paper analyzes theoretically and empirically the coordination failure problem inherent within the 21st-century automation revolution. First, we build a general equilibrium model with labor-saving artificial intelligence (AI) technology that is developed through R&D investments in automation. The model exhibits multiple market equilibria due to a positive feedback loop between AI investments and general economic activities. The available evidence supports our model's predictions regarding the interaction between AI technologies, income inequality, and wages. We also find strong empirical support for multiple equilibria in AI development-the primary prediction of our model. These empirical and theoretical results suggest that AI development can cause coordination failures, thereby creating leaders and followers in automation. However, according to our policy analysis, R&D subsidies and public-private partnerships are efficient coordination devices to tackle this problem. We are grateful for the valuable help from Ping Yu and comments from Fabien Petit, Tolga Aksoy, Guy Barokas, Daniele Angelini, and the participants of the CORA 2022-Conference on Robots and Automation.

Research paper thumbnail of Smart grids and renewable electricity generation by households

Energy Economics, 2019

The aim of the study is to analyze investments in intermittent renewable energy and energy storag... more The aim of the study is to analyze investments in intermittent renewable energy and energy storage by a household (HH). The novelty of our model accrues from the flexibility it assigns to a HH in feeding (purchasing) electricity to (from) the grid or storing energy from renewable energy installations. We study the consequences of demand-side management for a HH by accounting for three levels of equipment in smart grids. The first level refers to the possibility of feeding electricity to the grid, which can be achieved relatively simply by net metering. The second level concerns the installation of smart meters. The third level relates to energy storage. We analyze decisions concerning photovoltaic system and energy storage investments, and the consequences of energy storage and smart meters for electricity consumption and purchases of electricity from the grid. Additionally, we study the desirability of a smart meter installation and the implications of curtailment measures for avoiding congestion. Our results indicate that dynamic tariffs, which should encourage HHs to use the power system efficiently and, thus, to save energy, can lead to more reliance on the grid. Thus, the dynamic tariff structure needs to be carefully planned.

Research paper thumbnail of The economics of CCS: Why have CCS technologies not had an international breakthrough?

Renewable and Sustainable Energy Reviews, 2018

Eleven years on since the United Nations' Intergovernmental Panel on Climate Change was awarded t... more Eleven years on since the United Nations' Intergovernmental Panel on Climate Change was awarded the Nobel Peace Prize in recognition of its efforts in combating climate change, fossil fuels remain the most dominant global energy source. As the total replacement of fossil fuel energy is not expected to take place immediately in the near future, the International Energy Agency has repeatedly declared carbon capture and sequestration (CCS) as a key technology for mitigating climate change. However, CCS lacks the scale required for substantial reduction in carbon dioxide emissions from fossil fuel power generation. Even though CCS is one of the key technologies for mitigating climate change, why has this technology not had an international breakthrough? To shed light on this question, this paper employs a simple model of energy generation, scrutinizes the economic drivers of CCS based on the analytical results, and discusses the possible obstacles that can prevent a widespread rollout of the technology. This is followed by a state-of-the-art in literature pertaining to the economics of CCS, and a discussion that points to a dichotomy between the economic theory and reality. The study concludes with some policy suggestions and directions for future research.

Research paper thumbnail of A Two-Sector Model of Economic Growth with Endogenous Technical Change and Pollution Abatement

Environmental Modeling & Assessment, 2019

We provide insights into the relationships between technological development, economic growth, an... more We provide insights into the relationships between technological development, economic growth, and pollution accumulation, using a two-sector model of economic growth with endogenous technical change. In the model, output is produced using a polluting resource. Production can be used for either consumption or abatement of pollution. Scientists can be allocated between two research activities: resource-saving and abatement-augmenting technologies. Our results indicate conditional path dependency. Specifically, when the innovative capacity in the resource-saving research sector is sufficiently high, scientists are allocated to improve only the resource-saving technology, independently of the state of the technologies and environment. Consequently, the allocation of researchers is path-independent. When the innovative capacity in the abatement-augmenting research sector is sufficiently high, the optimal allocation of researchers depends on the initial level of the pollution stock or technologies but eventually will be directed to improve the abatement technology. We further characterize the optimal steady-state and off-steady-state dynamics and show that green growth is always socially optimal. By using a two-sector model, we address a lack of attention to multi-sector growth models in neoclassical growth theory and show that distinct results and transitional dynamics can emerge.

Research paper thumbnail of Energy Storage and Renewable Energy

SSRN Electronic Journal

I consider an economy with fossil fuel and renewable energy and energy storage, and search for th... more I consider an economy with fossil fuel and renewable energy and energy storage, and search for the conditions that lead to welfare improvements when energy is stored. I then solve for the optimal decision rule and analyze the long-run tendencies of the economy-energy variables. The findings are threefold. First, energy storage is fostered by the convexity of the marginal utility (prudence), the marginal cost function for fossil fuel energy, and the degree of intermittency. Second, considering a low penetration of renewable energy to the power grid, energy storage is not welfare improving if the fossil fuel energy cost function is linear. Third, energy storage creates an added value to renewable energy investments when actively used. By showing the influence that energy storage can have on energy generation and investment decisions, I hope that the current work can be influential in a more generous treatment of energy supply in future energy-economy-climate models.

Research paper thumbnail of Levelized Cost of Consumed Electricity Levelized Cost of Consumed Electricity

Economics of Energy & Environmental Policy

Research paper thumbnail of Precautionary Storage in Electricity Markets

SSRN Electronic Journal, 2000

As renewable energy depends on meteorological shocks and is non-controllable, the overall energy ... more As renewable energy depends on meteorological shocks and is non-controllable, the overall energy production becomes riskier with the rising renewable share. Although this has led to a renewed interest in storage technologies, not much consideration has been given to energy storage due to precautionary motives. In our study, we look at to what extent a convex marginal utility (prudence) and a convex marginal cost (frugality) can spur precautionary energy storage. We set up a simple theoretical model of energy consumption and production with intermittent renewable sources, dispatchable systems, and energy storage. First, we characterize the optimum and demonstrate how prudence and frugality can lead to higher levels of energy storage. By applying our findings to perfectly competitive markets, we further show that prudence and frugality increase the market energy price through higher demand for energy storage and decrease price volatility. Our analysis can have implications for inventory decisions in various other industries where firms face capacity constraints and are exposed to production risks.

Research paper thumbnail of AI Revolution and Coordination Failure

This paper analyzes theoretically and empirically the coordination failure problem inherent withi... more This paper analyzes theoretically and empirically the coordination failure problem inherent within the 21st-century automation revolution. First, we build a general equilibrium model with labor-saving artificial intelligence (AI) technology that is developed through R&D investments in automation. The model exhibits multiple market equilibria due to a positive feedback loop between AI investments and general economic activities. The available evidence supports our model's predictions regarding the interaction between AI technologies, income inequality, and wages. We also find strong empirical support for multiple equilibria in AI development-the primary prediction of our model. These empirical and theoretical results suggest that AI development can cause coordination failures, thereby creating leaders and followers in automation. However, according to our policy analysis, R&D subsidies and public-private partnerships are efficient coordination devices to tackle this problem. We are grateful for the valuable help from Ping Yu and comments from Fabien Petit, Tolga Aksoy, Guy Barokas, Daniele Angelini, and the participants of the CORA 2022-Conference on Robots and Automation.

Research paper thumbnail of Smart grids and renewable electricity generation by households

Energy Economics, 2019

The aim of the study is to analyze investments in intermittent renewable energy and energy storag... more The aim of the study is to analyze investments in intermittent renewable energy and energy storage by a household (HH). The novelty of our model accrues from the flexibility it assigns to a HH in feeding (purchasing) electricity to (from) the grid or storing energy from renewable energy installations. We study the consequences of demand-side management for a HH by accounting for three levels of equipment in smart grids. The first level refers to the possibility of feeding electricity to the grid, which can be achieved relatively simply by net metering. The second level concerns the installation of smart meters. The third level relates to energy storage. We analyze decisions concerning photovoltaic system and energy storage investments, and the consequences of energy storage and smart meters for electricity consumption and purchases of electricity from the grid. Additionally, we study the desirability of a smart meter installation and the implications of curtailment measures for avoiding congestion. Our results indicate that dynamic tariffs, which should encourage HHs to use the power system efficiently and, thus, to save energy, can lead to more reliance on the grid. Thus, the dynamic tariff structure needs to be carefully planned.

Research paper thumbnail of The economics of CCS: Why have CCS technologies not had an international breakthrough?

Renewable and Sustainable Energy Reviews, 2018

Eleven years on since the United Nations' Intergovernmental Panel on Climate Change was awarded t... more Eleven years on since the United Nations' Intergovernmental Panel on Climate Change was awarded the Nobel Peace Prize in recognition of its efforts in combating climate change, fossil fuels remain the most dominant global energy source. As the total replacement of fossil fuel energy is not expected to take place immediately in the near future, the International Energy Agency has repeatedly declared carbon capture and sequestration (CCS) as a key technology for mitigating climate change. However, CCS lacks the scale required for substantial reduction in carbon dioxide emissions from fossil fuel power generation. Even though CCS is one of the key technologies for mitigating climate change, why has this technology not had an international breakthrough? To shed light on this question, this paper employs a simple model of energy generation, scrutinizes the economic drivers of CCS based on the analytical results, and discusses the possible obstacles that can prevent a widespread rollout of the technology. This is followed by a state-of-the-art in literature pertaining to the economics of CCS, and a discussion that points to a dichotomy between the economic theory and reality. The study concludes with some policy suggestions and directions for future research.

Research paper thumbnail of A Two-Sector Model of Economic Growth with Endogenous Technical Change and Pollution Abatement

Environmental Modeling & Assessment, 2019

We provide insights into the relationships between technological development, economic growth, an... more We provide insights into the relationships between technological development, economic growth, and pollution accumulation, using a two-sector model of economic growth with endogenous technical change. In the model, output is produced using a polluting resource. Production can be used for either consumption or abatement of pollution. Scientists can be allocated between two research activities: resource-saving and abatement-augmenting technologies. Our results indicate conditional path dependency. Specifically, when the innovative capacity in the resource-saving research sector is sufficiently high, scientists are allocated to improve only the resource-saving technology, independently of the state of the technologies and environment. Consequently, the allocation of researchers is path-independent. When the innovative capacity in the abatement-augmenting research sector is sufficiently high, the optimal allocation of researchers depends on the initial level of the pollution stock or technologies but eventually will be directed to improve the abatement technology. We further characterize the optimal steady-state and off-steady-state dynamics and show that green growth is always socially optimal. By using a two-sector model, we address a lack of attention to multi-sector growth models in neoclassical growth theory and show that distinct results and transitional dynamics can emerge.

Research paper thumbnail of Energy Storage and Renewable Energy

SSRN Electronic Journal

I consider an economy with fossil fuel and renewable energy and energy storage, and search for th... more I consider an economy with fossil fuel and renewable energy and energy storage, and search for the conditions that lead to welfare improvements when energy is stored. I then solve for the optimal decision rule and analyze the long-run tendencies of the economy-energy variables. The findings are threefold. First, energy storage is fostered by the convexity of the marginal utility (prudence), the marginal cost function for fossil fuel energy, and the degree of intermittency. Second, considering a low penetration of renewable energy to the power grid, energy storage is not welfare improving if the fossil fuel energy cost function is linear. Third, energy storage creates an added value to renewable energy investments when actively used. By showing the influence that energy storage can have on energy generation and investment decisions, I hope that the current work can be influential in a more generous treatment of energy supply in future energy-economy-climate models.

Research paper thumbnail of Levelized Cost of Consumed Electricity Levelized Cost of Consumed Electricity

Economics of Energy & Environmental Policy

Research paper thumbnail of Precautionary Storage in Electricity Markets

SSRN Electronic Journal, 2000

As renewable energy depends on meteorological shocks and is non-controllable, the overall energy ... more As renewable energy depends on meteorological shocks and is non-controllable, the overall energy production becomes riskier with the rising renewable share. Although this has led to a renewed interest in storage technologies, not much consideration has been given to energy storage due to precautionary motives. In our study, we look at to what extent a convex marginal utility (prudence) and a convex marginal cost (frugality) can spur precautionary energy storage. We set up a simple theoretical model of energy consumption and production with intermittent renewable sources, dispatchable systems, and energy storage. First, we characterize the optimum and demonstrate how prudence and frugality can lead to higher levels of energy storage. By applying our findings to perfectly competitive markets, we further show that prudence and frugality increase the market energy price through higher demand for energy storage and decrease price volatility. Our analysis can have implications for inventory decisions in various other industries where firms face capacity constraints and are exposed to production risks.