The impact of spillovers on strategic R&D under uncertainty

Abstract This study examines the impact of technological spillovers on competitive and cooperative R&D investments under uncertainty. It assumes that the innovation size is given and an increase in R&D expenditure increases the probability of success. It focuses on the symmetric equilibrium and finds that: (i) the equilibrium R&D expenditure under R&D competition (resp. R&D cooperation) may increase (resp. decrease) with the degree of spillovers if the spillovers are sufficiently small, the innovation size is big enough and the probability of success is high (resp. low) enough; (ii) under R&D competition the privately optimal R&D expenditure may overshoot the social optimum if the spillovers are sufficiently small; (iii) under R&D cooperation the private optimum is socially insufficient regardless of the size of spillovers.

Introduction
As firms that devote resources to develop a new product or new technology do not determine whether they will succeed (or how much time they will spend), there exists uncertainty on the outcome of R&D activity (Silipo & Weiss, 2005). Most of the existing literature on R&D with uncertainty examines patent races, in which the invention time of technology is the variable of interest (Bloch & Markowitz, 1996;Cai, Zeng, & Xia, 2011;Dasgupta & Stiglitz, 1980;Grenadier, 2000;Harris & Vikers, 1987). Much less work has been done on strategic R&D investments with uncertainty. Marjit (1991), Combs (1992), Kabiraj (2007) and Chattopadhyay and Kabiraj (2015) examine the role of uncertainty on the incentives of firms for doing cooperative research. Tishler (2008), Zhang, Mei, and Zhong (2013) and Xing (2014) analyse firms' optimal choice of R&D risk among R&D projects with identical expected outcomes. Moreover, Matsumura (2003) and Kitahara and Matsumura (2006), respectively, investigate welfare implications and efficient subsidies for strategic R&D investments when firms engage in stochastic cost-reducing R&D.
When technology spillovers occur in an industry, successful firms cannot appropriate all of the gains from the outcome of the R&D activity. This public good aspect associated with R&D investments may weaken firms' incentives to invest in R&D. Many studies focus on spillover effects from firms' R&D activity. d' Aspremont and Jacquemin (1988) originally presented a duopoly model to observe R&D cooperation between firms experiencing spillover effects. Their work has spawned numerous extensions (Boivin & Vencatachellum, 2002;Kamien, Muller, & Zhang, 1992;Leahy & Neary, 1997;Slivko & Theilen, 2014;Yang & Nie, 2015). However, only a few studies on R&D have considered both uncertainty and spillovers. Most of them analyse the effects of uncertainty and spillovers on firms' incentives for R&D cooperation (Amir, Evstigneev, & Wooders, 2003;Choi, 1993;Hinloopen, 2008;Silipo & Weiss, 2005).
In the deterministic model of d' Aspremont and Jacquemin (1988), equilibrium R&D expenditure under competition (resp. cooperation) certainly decreases (resp. increases) with the extent of spillovers, and private R&D expenditure is socially insufficient under both competition and cooperation R&D. 1 Although most studies assume that R&D succeeds with probability one, most R&D projects fail with a positive probability. In addition, technology spillover is very common in most industries. Therefore, it is interesting to investigate the effect of uncertainty on the relationship between spillovers and R&D investments. This paper introduces uncertainty into the model of d' Aspremont and Jacquemin (1988). 2 The objective of this study is to re-examine the impact of technological spillovers on firms' R&D incentives and the welfare implication of strategic R&D in a duopoly in the presence of uncertainty. The innovation size is given, and it is assumed that an increase in R&D expenditure increases the probability of success. The study focuses on the symmetric equilibrium and finds that, different from the results of d' Aspremont and Jacquemin (1988), the equilibrium R&D expenditure under competition (resp. cooperation) may increase (resp. decrease) as the degree of spillovers increases, and the private optimum under R&D competition may overshoot the social optimum if the spillovers are small enough.
The remainder of this study is organised as follows. Section 2 describes the basic model, and sections 3 and 4 investigate the private optimum under R&D competition and R&D cooperation, respectively. The social optimum is analysed in section 5. The final section presents conclusions.

The model
Consider a market populated by an infinite number of consumers and two firms which produce a homogeneous good. As in d' Aspremont and Jacquemin (1988), Hinloopen (2008) and many other papers, the inverse demand function is given by: In (1), p is the price of product and Q i is the output of firm i (i = 1, 2). Following d' Aspremont and Jacquemin (1988), a is assumed to satisfy a > 0 and a ≥ Q 1 + Q 2 .
We consider a two-stage game. In the first stage, each firm undertakes R&D activity to lower its marginal cost. Assume that the R&D output is uncertain. It is x i (x i > 0) (i = 1, 2) if firm i succeeds and it is 0 if firm i fails. Moreover, firm i succeeds with probability q i (0 ≤ q i ≤ 1). Assume that the R&D output (x i ) is exogenous and q i is the choice variable of firm i (it can also be interpreted as the chosen research intensity) (Matsumura, 2003). R&D yields technological spillovers for the other firm by lowering its marginal production cost. Let c i denote the marginal cost of firm i. There are four possible outcomes: is the marginal cost before R&D and β (0 ≤ β ≤ 1) measures the technological spillovers; (ii) c i = c -x i and c j = c -βx i if firm i succeeds and firm j fails; (iii) c i = c -βx j and c j = c -x j if firm j succeeds and firm i fails; (iv) c i = c j = c if both firms fail. In the second stage, firms know the R&D outcome, and they behave in Cournot competition to decide how much to produce.
The profit function of firm i is given by: i is big enough, which guarantees that the stability conditions for R&D are satisfied and the equilibrium and socially optimal outcome are unique and interior.

R&D competition
Firms compete in both the production and the R&D stages in this section. In the second stage, each firm chooses the output to maximise its operating profits. The equilibrium output of firm i is given by: The resulting profit of firm i is: In the first stage, firms decide their R&D expenditure. In this stage the R&D outcomes are uncertain. According to (4), the expected profit for firm i is: Note that, to ensure expected outputs are positive in all possible cases, we assume a -c + (2β -1)x j > 0 (j = 1, 2) for β ∊ [0, 1]. Now each firm chooses the probability of success to maximise its expected profit. The first-order conditions yield: Thus, the following equation is obtained: Given x i = x j = x, when q i = q j = q, we can derive: Note that we only consider a symmetric equilibrium in this study. Let q * denote the equilibrium probability of success, which is solved from Equation (8). We assume that the model parameters can ensure 0 ≤ q * ≤ 1. Zhang and Zhang (1996), Amir and Wooders (1998) and Matsumura (2003) suggest that the equilibrium predicts play well when it is stable, but predicts play poorly when it is unstable. The stability condition requires q * meeting: The above condition can guarantee Nash equilibrium in R&D stage is unique and symmetric.
Taking the derivative of β on both sides of Equation (10) yields: We obtain: According to (9), 9 2 I(q * ) When the technological spillovers are sufficiently large, the rival firm can free-ride on most of the R&D outputs and a firm cannot gain great competitive advantage if it succeeds. In this case, the incentive to improve the probability of success reduces if the degree of spillovers increases. However, the public good aspect associated with R&D is not necessarily detrimental for private investment in competitive R&D. 3 According to the second part of Proposition 1, when the spillovers are sufficiently small, an increase in the degree of spillovers may increase the level of R&D expenditure (see Figure 1). 4 This is different from the well-known result that an increase in the degree of spillovers certainly reduces the level of R&D expenditure in a competitive R&D market (d' Aspremont & Jacquemin, 1988 5 ;Choi, 1993;Silipo & Weiss, 2005). The intuition behind this result is as follows. Given a and c, if a firm can obtain a high innovation size with large probability and the spillovers are small, it gains huge competitive advantage once successful. In this case, the incentive to increase the probability of success is high. Since firms do not eliminate the duplication of R&D efforts, they invest more for the same expected profit if the degree of spillovers increases.

R&D cooperation
In this section, firms compete in the production stage and cooperate in the R&D stage. 6 Here, firms invest in R&D separately, and coordinate their R&D expenditures so as to maximise their joint profit. The solution to the two-stage game starts by first solving equilibrium outputs in the second stage. The equilibrium output and profit of firm i are still given by (3) and (4), respectively. Thus, the expected joint profit equals EΠ = E(π 1 + π 2 ) = Eπ 1 + Eπ 2 , i.e., The first-order conditions yield: , we only consider a symmetric equilibrium), there is: Let q # denote the equilibrium probability, which is solved from Equation (15). We assume that the model parameters can ensure 0 ≤ q # ≤ 1. The stability condition requires q # meeting: i (i = 1, 2)). source: numerical simulations on the basis of the settings given in assumption.

Proof. (i) because q # satisfies Equation (15), we have:
Taking the derivative of β on both sides of Equation (17) yields: We can derive: According to (16), 9 2 I(q # ) . Thus, when β and q # are small enough and x is big enough The first part of Proposition 2 demonstrates that under R&D cooperation the technological spillovers can promote R&D expenditures in the presence of sufficiently large spillovers. The reason for this result is as follows. Under the current regime, firms agree to coordinate R&D activity to maximise the sum of overall expected profits, so the technological spillovers are partly internalised (Kamien et al., 1992). R&D investment by one firm can generate two externalities on the other firm (Hinloopen, 1997;Yi, 1996). On the one hand, if the firm which invests in R&D succeeds, it increases its production efficiency and steals business from the other firm by becoming more efficient in production (identified as the business-stealing externality). On the other hand, the rival firm gets some of the benefits of R&D due to the spillovers, and thereby its production efficiency also increases (identified as the free-riding externality). Obviously, the business-stealing externality is negative and the free-riding externality is positive. When the spillovers are sufficiently large, a firm can free-ride on most of its competitor's R&D outputs. The positive free-riding externality dominates the negative business-stealing externality so that an increase in a firm's R&D spending raises the other firm's expected profit (further raises the expected joint profit). In this case, the technological spillovers can increase firms' R&D expenditure under cooperative R&D.
According to the second part of Proposition 2, when the spillovers are sufficiently small, an increase in the size of spillovers may decrease the level of R&D expenditure under cooperation (see Figure 2). 7 This is different from the well-known result that an increase in the degree of spillovers certainly increases the level of R&D expenditure under cooperation (d' Aspremont & Jacquemin, 1988). 8 The intuition behind this result is as follows. When the spillovers are small enough, the negative business-stealing externality dominates the positive free-riding externality so that an increase in a firm's R&D spending lowers the other firm's expected profit. If a firm engages in a project with high innovation size and high risk, the increase of its expected profit is lower than the reduction of the other firm's expected profit (therefore the expected joint profit decreases) as its R&D expenditure increases. In this case, the technological spillovers can decrease firms' R&D expenditure under cooperative R&D.

The social optimum
Social welfare, defined as the sum of the firms' profit and the consumers' surplus, is written by: In (20), cs represents the consumer surplus. Assume that the social planner adjusts the R&D investment and the product outputs are determined by competition. According to (3), (4) and (20), the social welfare is: Since the R&D outcomes are uncertain, the social welfare is an expectation value. The expected social welfare is given by: The first-order conditions yield:  Figure 2. the impact of β on q # (when a = 6, c = 4, x = 1 and I(q i ) = 5q 2 i (i = 1, 2)). source: numerical simulations on the basis of the settings given in assumption.

(22)
Given x i = x j = x, when q i = q j = q, we obtain: Let q s denote the socially optimal probability, which is solved from Equation (24). We assume that the model parameters can ensure 0 ≤ q s ≤ 1. The stability condition requires q s meeting: (2− ) 2 +3(2 −1) 2 , and then can prove the following results.
Proposition 3. (i) when β is big enough (meet ≥ 1 2 ), q * < q s ; (ii) when β is small enough (meet < 1 5 ), q * > q s if x <x, q * < q s if x >x and q * <q, and q * > q s if x >x and q * >q. Proof. (i) q * and q s satisfy (8) and (24) respectively. By seeking the difference between the left-hand side of (24) and (8), we have: Obviously, when ≥ 1 2 , Δ > 0. From the convexity of I(q), we get the first part of Proposition 3; x. Thus, when < 1 5 and x <x, Δ < 0. Moreover, when < 1 5 , we can prove that Δ > 0 if x >x and q <q, and Δ < 0 if x >x and q >q. From the convexity of I(q), we derive the second part of Proposition 3.
This proposition implies that, from a social-welfare perspective, when the technological spillovers are sufficiently large, the R&D levels for individual firms are too low under competition in R&D. However, when the spillovers are sufficiently small, they are too high if both the innovation size and the probability of success are high enough (or if the innovation size is low enough), and they are still too low if the innovation size is high enough but the probability of success is low enough. This is different from the study of d' Aspremont and Jacquemin (1988), where the private optimum under R&D competition is insufficient for all sizes of spillovers. The logic behind this proposition is as follows. When a firm decides on its R&D expenditure under competition, it does not care about the positive externalities of R&D on its competitor's expected profit and the expected consumer surplus. However, the social planner takes into account both the firms' expected profit and the expected consumer surplus and therefore maximises the sum of the two. Given q 2 (q 1 ), regardless of the spillover size, the expected industrial product output (resp. the expected price) is more (resp. lower) if firm 1 (firm 2) succeeds than if it fails. Thus, the expected consumer surplus increases if firm 1 (firm 2) invests more to increase the probability of success. When the spillovers are sufficiently large, firm 2 (firm 1) can free-ride on most of the R&D outputs if firm 1 (firm 2) succeeds. Thus, given q 2 (q 1 ), if firm 1 (firm 2) increases R&D expenditure, the expected profit of firm 2 (firm 1) increases. Thus, firms do not invest in R&D with enough high probability of success for the social optimum. When the spillovers are sufficiently small, firm 2 (firm 1) can free-ride on a few of the R&D outputs if firm 1 (firm 2) succeeds. Given q 2 (q 1 ), firm 2's (firm 1's) expected profit decreases if firm 1 (firm 2) increases R&D expenditure. Moreover, the expected consumer surplus increases if firm 1 (firm 2) invests more to increase the probability of success. However, the decrease of the expected profit of firm 2 (firm 1) exceeds the increase of the expected consumer surplus if the innovation size is small enough (or if firm 1 (firm 2) gets a big R&D output with enough high probability), and it is lower than the increase of the expected consumer surplus if firm 1 (firm 2) obtains a big R&D output with enough low probability. Thus, if the innovation size is small enough or firm 1 (firm 2) gets a big R&D output with enough high probability (resp. if firm 1 (firm 2) gets a big R&D output with enough low probability), firms invest in R&D with too high (resp. too low) probability of success for the social optimum. These results imply that the optimal tax subsidy for investment under R&D competition crucially depends on the degree of spillovers, the innovation size and the probability of success. For examples, if firms engage in projects which are relatively easy to result in a success with high innovation size, subsidies on firms' R&D expenditure improve welfare when the degree of spillovers is large enough, but they are harmful when the degree of spillovers is small enough.
It is generally agreed that, in the automobile industry, the spillovers of foundational research and applied foundational research are much higher than those of applied research. In China, the government is implementing an innovation-driven development strategy, and mainly funds automobile firms engaging in foundational research and applied foundational research, or firms engaging in applied research with big innovation size and high risk. However, it generally does not fund automobile firms who only engage in applied research with small innovation size. According to Proposition 3, this policy can increase social welfare.
Proposition 4. q # < q s . Proof. q # and q s satisfy (15) and (24) respectively. By seeking the difference between the left-hand side of (24) and (15), we have: From the convexity of I(q), we obtain Proposition 4. This proposition implies that, regardless of the degree of spillovers, the R&D levels for individual firms are too low under cooperation in R&D from a social-welfare perspective. In other words, firms have an insufficient incentive for increasing the probability of success if they cooperate in R&D. The intuition behind this result is as follows. Given q 2 (q 1 ), the expected industrial product output (resp. the expected price) is more (resp. lower) if firm 1 (firm 2) succeeds than if it fails regardless of the spillover size. Consequently, the expected consumer surplus increases if firm 1 (firm 2) increases R&D expenditure. When firms decide on the R&D expenditure under cooperation, they only care about the expected joint profits and do not take into account the expected consumer surplus. However, the social planner considers both the firms' expected profits and the expected consumer surplus and therefore maximises the sum of the two. Thus, firms do not invest in R&D with enough high probability of success for the social optimum.
This result implies that, regardless the degree of spillovers and the project's innovation size and risk, subsidies on firms' R&D expenditure improve welfare under cooperative R&D. In China, there is not much R&D cooperation among competitive firms in most hightech industries. The government encourages high-tech firms doing more R&D cooperative {2(a − c)(1 + ) + [(2 − ) 2 + (2 − 1) 2 + 4q(2 − )(2 − 1)]x} > 0 activities, and generally gives them a certain amount of subsidy. According to Proposition 4, such a policy will contribute to social welfare.

Conclusions
In this paper we investigate the impact of technological spillovers on non-cooperative or cooperative R&D investments by introducing uncertainty. In the models, an increase in R&D expenditure increases the probability of success. We find that, under certain conditions, the spillovers increase (resp. reduce) the equilibrium R&D expenditure under non-cooperative R&D (resp. cooperative R&D). This is different from the well-known results in the deterministic model (d ' Aspremont & Jacquemin, 1988). In addition, under R&D competition the private optimum may exceed the social optimum when the spillovers are sufficiently small, and under R&D cooperation it is lower than the social optimum no matter the size of spillovers.

Notes
1. It is worth noting that there are some cases in reality that do not match these theoretical results. For example, in the smartphone industry, there exists fierce R&D competition between Apple and Huawei. On the one hand, the technology spillovers are increasing in the smartphone industry because of more frequent technical exchanges and employee turnover between firms, or/and other factors. On the other hand, Apple and Huawei continue to increase investments in smartphone R&D. This is clearly contrary to the theoretical result 'the R&D expenditure under competition certainly decreases with the extent of spillovers' . We note that the smartphone R&D has high uncertainty. However, the model of d ' Aspremont and Jacquemin (1988) does not consider the uncertainty in R&D. Thus, it may be the R&D uncertainty that leads to the deviation of theory and reality. 2. The models of Matsumura (2003) also consider strategic R&D under uncertainty; however, his models ignore the spillover effects of R&D and do not consider the case of R&D cooperation. 3. It is usually considered that the technology spillovers will weaken private investment in competitive R&D. However, existing empirical literature shows that in many cases the spillovers increase R&D expenditures (Bernstein & Nadiri, 1988;Jaffe, 1988;Levin, 1988). 4. Several recent studies also emphasise the spillover may increase innovation expenditures (Chen, Nie, & Wang, 2015;Chen, Wen, & Luo, 2016). Chen et al. (2016) consider a duopoly food market where only one of the firms engages in corporate social responsibility (CSR) with negative spillover effects on its competitor, and find that CSR spillovers increase CSR firm's expenditures. In their study the CSR spillovers are negative, but we only consider the positive R&D spillovers in this paper. Chen et al. (2015) examine asymmetric competition with innovation spillover and input constraints, and find an inverted U relationship between spillover and investment difference. Different from their study, this paper emphasises the inverse-U shape between spillover and firms' innovation expenditure (see Figure 1). 5. In the model of d' Aspremont and Jacquemin (1988), the unique equilibrium solution under R&D competition is x * i = (a−A)(2− ) 4.5b −(2− )(1+ ) , i = 1, 2, where β is the technology spillovers parameter. We can prove [4.5b −(2− )(1+ )] 2 < 0. Thus, the R&D level under competition decreases with the degree of spillovers for all β ∊ [0, 1]. Proposition 1 of this paper implies that this result may be no longer valid by considering R&D uncertainty. 6. In many countries, governments directly intervene or even prohibit the collusion of firms in the production stage (or sale stage), but they support cooperation in R&D (e.g., the National Cooperative Research Act of the United States in 1984). Thus, different from the study of d' Aspremont and Jacquemin (1988), this paper does not consider the case that firms cooperate in both production and R&D stages.


Financialization and its impact upon the developed economies

JEL: G15, G34

Introduction
The origin of the term "financialization" is not clear. The first usage of it is usually attributed to Philips (1993) who defined financialization as a process of permanent and growing separation of the financial sphere of the economy from its real counterpart. Since the beginning the 1990s the term has been increasingly used throughout the economic literature. In its original and primary interpretation, financialization refers to the transformation of the economic system of developed countries, the essence of which is the dramatically growing role of the financial system. In a broad sense, financialization is understood as a process of autonomization of the financial sphere or even obtaining the supremacy over the real economy. The purpose of this article is to present the key concepts of financialization and analyze the consequences of it for the economy as a whole as well as for corporations and individuals.

Financialization -definitions, measures and causation
Financialisation is a relatively new term, which covers such a range of phenomena that it is difficult to define precisely. Financialization is a complex term, containing several different dimensions and aspects. As a consequence, there is no single definition of financialization. For instance Krippner (2005) looks at the return on financial assets as a rising share of profits of non-financial institutioins. Other scholars analyze the growth of financial service providers since the 1980s with a particular focus on the increasing size of financial services relative to other sectors of the American economy (e.g. Witko, 2016). Others highlight the emergence of a finance culture in the United States as households actively embrace financial strategies as a means to manage their consumption, indebtedness, and saving (Fligstein, Goldstein, 2015). The most-cited definition of financialization comes from Gerald Epstein. He defines it as "the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies" (Epstein, 2005, p. 3) In a general sense, financialization refers to the transformation of the relationship between financial markets and non-financial corporations. At the firm level, financialization is "a pattern of accumulation in which profits accrue primarily through financial channels rather than through trade and commodity production" (Krippner, 2005, pp. 174-175). Additionally, distinction should be made between three main dimensions: (1) financialization of objectives refers to the implementation of shareholder value norms, whose consequence are ane an increase of the financial flows to from nonfinancial corporation to the financial sector; (2) financialization of investment refers to the increasing share of financial assets owned by non-financial firms; and (3) financialization of operations refers to the development of financial activities and relationships offered to customers and/or imposed on workers and suppliers, by nonfinancial firms (Baud, Durand, 2011, p. 4).
Most scholars agree the process of financialization started in the 1890s, however Faziano et al (2016, p. 1) put forward a thesis that it started at the beginning of 20 th century and can be decomposed to four subperiods: since the beginning of the century until 1933, i.e. until the beginning of New Deal program in the US, introduced to overcome the great crisis, intermediate period from 1933 until 1940, the golden age of capitalism 1945-1973, since 1973 until today. The rapid growth of the financial sector since the 1980s has been the most significant change to the American economy in the post-war period. Over the past thirty years, the share of national income generated by the financial services industry has increased by more than fifty percent, rising from less than five to more than eight percent of GDP. The US economy was not the only one to experience dramatic growth in financial services. Other countries, including Switzerland, Great Britain, Canada stand out for increasing share of their economies devoted to finance. During this period the financial services sector has grown enormously. This growth is apparent whether one measures the financial sector by its share of GDP, by the quantity of financial assets, by employment, or by average wages. The growth of the financial sector is also evident in the growth of financial claims and contracts, including stocks, bonds, derivatives, and mutual fund shares. Much of the growth of finance is associated with two activities: asset management and the provision of household credit.
Financialization is evident in two broad measures of economic activity (Oatley, Petrova, 2016, p. 4). The most direct measure of financialization is the value added by the financial services industry, i.e. value added by credit intermediation, the management of securities, and insurance. By this measure, the contribution of financial services to the American economy expanded by more than 50 percent between 1980 and 2007. A second and indirect measure of financialization is evident in data on the source of corporate profits. Profits generated by financial activities rose from 20 percent to 50 percent of non-financial corporate profits between 1980 and 2010. Both measures point to the same conclusion: financial activity began a rapid expansion in the late 1970s and the early 1980s. Davis and Kim (2014) note that this growth marks a fundamental discontinuity between the immediate post-war period, which was primarily driven by industrial production, and the current era, in which finance assumes a much larger role.
Typically, scholars argue that financialization has been the consequence of globalization and deregulation (Tomaskovic-Devey, Lin, 2011;Witko, 2016). Thus deregulation fundamentally shifted the basic structure of the economy to favor the financial sector (Tomaskovic-Devey, Lin, 2011, p. 543). The new regulatory framework, designed to reverse the decline in the rates of return to capital that occurred in the 1970s, removed obstacles to financial activity and refrained from regulating new financial products. It has lead to exponential growth of markets for derivatives and other financial innovations. As a consequence, it stimulated financial investment over physical capital investment and unleashed speculation, borrowing, and trading with securities (Witko, 2016, p. 356).

Financialization -economic theory perspective
There is a widespread view that the emergence of an era of neo-liberalism and contributed to the fast development of financialization from the beginning of the 1980s (in the dominant capitalist economies). According to Harvey (2005), "neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets and free trade". The neoliberal theory is rooted in the works of authors such as Fama (1970). Liberalization parallel to globalization opened foreign markets. It meant the elimination of restrictions on the transit of goods and capital. This process was set in motion in the 1980s and is ongoing. This new paradigm gave rise to important transformations in different spheres of the financial sector: 1. The creation of financial assets and capital movements between different countries was liberalized. In addition, there was a progressive substitution of public regulation by the self-regulation of the markets. These factors have encouraged the development and growing complexity of the financial system. 2. Within the business area, the vision of business became more short-term and the approach to incentivizing managers changed, depending more on shortterm company results and on the evolution of share prices. Therefore, companies acted consistent with the image they projected in the market, seeking short-term stock market revaluations rather than investments that would bear fruit in the longer term. According to economic theory attributes there are many benefits to liberalization for those economies that implement it: liberalization produces a growth in competition and in the scope and depth of the markets, thereby increasing efficiency and causing a reduction in interest rates, both of which benefit economic growth, companies can profit from a greater diversification of risk and from greater possibilities of access to financing, financial entities improve their solvency and operations are more transparent. The negative aspect of liberalism is that it tends to increase instability.

Financialization of the economy -impact upon corporate governance
As a consequence of globalization, which has been influenced by neoliberalism and driven by liberalization and deregulation, the economic environment in which businesses operate, experienced a marked change. One of the important aspects of it have been changes in the corporate governance system. Corporate governance is defined as a system through which companies are managed and controlled. As such, it involves a series of relations between the different interested parties in the company and those that manage it, and it encompasses contracts, processes and mechanisms for decision making that attempt to ensure that the management applied in the company by the managers is in alignment with the objectives of the shareholders and other interested parties.
Thus, corporate governance oriented toward protecting the rights of shareholders is reflected in the Principles of Corporate Governance published by the OECD in 2004. It consists of six principles intended to provide the basis for companies to develop good practices of corporate governance. Within the six principles, there is an emphasis on the protection of shareholders, situating them as a collective whose rights must be defended as a priority. Shareholders are at the center of the ownership structure of the companies because of their right to make decisions based on their vote. Moreover, as their pay fluctuates in accordance with returns on equity, they ask for increased profits from the companies.
This approach to corporate governance favors institutional investors. They invest a big part of the capital they manage in shares and do so following the criteria to obtain increased profits. Therefore, if companies want to count on the support of the shareholders in their shareholder base, they must direct their governance towards the objectives that the institutional investors wish to achieve.
Along with the financial globalization and financialization of the economy, there has been an unprecedented growth of institutional investors that affect corporate governance. Investment funds, pension funds and insurance companies have significantly expanded since the early 1980s, and during the following decades. Institutional investors have a significant presence in the shareholder-base management corporations, thus giving shareholders the power to influence the governance. Because the main objective of financial governance in the financial sector could be aligned with the maximization of short-term shareholder value, and considering the objective of institutional investors, the way in which the alignment of managerial actions was approached evolved in parallel with the main objective.
Following the postulates of agency theory, the administrators to whom owners delegate management are considered to have different interests and perspectives on risk than those of the owners (shareholders). The former are less willing to assume risk because all of their human capital is invested in the company, unlike the shareholders, whose investment portfolios have been diversified. There are many ways to align managers' actions with shareholders' interests. With respect to corporate governance, important are manager incentives, out of which, over the last decades, the stock options are increasingly the most common one. This form of remuneration is intended to commit managers to increase the share market value because doing so will increase their remuneration. In other words, their incentives influence their interest to increase the company's value in the market, which coincides with the goals of the shareholders.
This system of incentives has numerous weakness from the perspective of longterm interests of the companies however it works to the advantage of shareholders and managers: It did not ensure that the levels of managers' salaries were matched by their performance. In fact they were markedly asymmetrical. When the entity increased its profit, higher remuneration was received by the managers, but when the entity registered losses, this was not reflected by a decrease in salaries. Moreover, immediate results were rewarded, neglecting any evaluation of the risks incurred to achieve them. This has led to greater risk taking by the entities and undue remunerations for the managers.
The system was not properly supervised by the shareholders' general meeting as it was not capable of ensuring that the defense of company interests was guaranteed over the long term (Bratton, Watcher, 2010).
The managers benefitted from an even greater moral hazard than that of the shareholders because they profited from all the rises in stock prices but were not affected at all when the price dropped, as they held options rather than shares.

The impact of financialization upon (big) (retail) companies
From the beginning of the 1990s until the first decade of 21 st century, leading retailers became highly specialized firms and experts in global supply, production and sales strategies. Despite of that they experienced a slowdown of their growth in domestic markets, Surprisingly, they have generated an opposite, i.e. upward trend in return on equity (Baud, Durand, 2011). Moreover, the share of profit distributed to shareholders reached a historical high in the most recent period.
One way of explaining this phenomenon is internationalization of trade. The late 1990s witnessed a powerful wave of retail internationalization. Leading retailers from Europe and the USA entered new markets, especially in developing countries. This expansion accelerated as the firms experienced a slowdown in their domestic sales.
On the other hand, the end of 1990s marked the beginning of the rise of financial investment by retailers. This shift towards more financial investment to the detriment of tangible investment has contributed to the continuation of a very high fall of the rate of tangible asset from 18% at the beginning of the 1990s towards less than 10% in the 2000s. This evolution towards more financial investment and a slower accumulation of tangible assets is consistent with the literature on financialization, which points out that firms have diverted a growing proportion of their incoming cash flows from investment in fixed capital.
The increasing role of shareholders and the development of a market for corporate control have led to a substantial transformation of management behavior in order to satisfy the cash payments required by impatient financial markets. In essence, the orientation has changed to short-term performance and increasing stock price.
This new behavior is detrimental to real investment in two kinds of mechanisms (Orhangazi, 2008). First, increased payments to financial markets in the form of interest payments, dividend payments and stock buybacks may hinder real investment by reducing internal funds and shortening the planning horizons. Second, increased financial profit opportunities may diminish real investment because firms will prefer to invest in financial assets and activities. Additionally, in a business environment characterized by a high level of uncertainty, the preference for liquid assets tends to increase.
The acceleration of financialization in the first decade of 21 st century reflects the long-term strategy of substitution of operational activities and investment by financial activities and investment. In the period of rising markets -as was the case between 2002 and 2007, and between 2009 until 2017 -financial investment offers managers the opportunity to generate incomes and satisfy impatient shareholders. For instance, Sears in the third quarter of 2006 earned more than half of its net income from form risky investments in derivatives.
In the early 1980s non-financial institutions started to develop financial activities that were generating increasingly high profits. For instance, non-bank commercial corporations such as GM, GE, Sears and other big retailers began to create structures that either accepted deposits (money market mutual funds) or made commercial and consumer loans (mortgage finance companies and credit card companies). Financial investments and the development of financial activities have provided firms with new sources of income and profits.

Conclusions
Systemic transformation of mature market economies comprises three fundamental elements: first, large non-financial corporations have reduced their reliance on bank loans and have acquired financial capacities; second, banks have expanded their mediating activities in financial markets as well as lending to households; third, households have become increasingly involved in the realm of finance both as debtors and as asset holders. As a consequence, non-financial companies have become increasingly involved in developing financial activities. It contributed to higher profits, however at the expense of investments in tangible assets and domination of short-term perspective parallel to negligence of long-term strategic goals.


The Economic Impact of Climate Change on Transportation Assets

Climate change is the statistical distribution changes of weather patterns when that change lasts for a long period. This paper aims to review economic wide effect of climate change on transportation assets. Climate change economically affects transportation by increasing maintenance, operation, rehabilitation, and repairmen costs of transportation infrastructure. Climate changes can also increase the cost of new transportation infrastructure due to higher climate adaptable design standards. It also accelerates infrastructure replacement costs. In addition to damage to transportation infrastructures, climate change can also indirectly cause loss of infrastructure service and activity disruption. Climate change also causes bring down travel times, higher cost choice required to address operational needs and accumulating yield for shipment when transport courses allow.

The Economic Impact of Climate Change on Transportation Assets
Gelete G *1 and Gokcekus H 2 1 Department of Civil Engineering, Near East University, Nicosia, northern Cyprus, Turkey 2 Faculty of Civil and Environmental Engineering, Near East University, Nicosia northern Cyprus, Turkey Infrastructure is the backbone of social and economic development. Especially transportation infrastructure is responsible for the development of civilizations from ancient times for transporting the required goods and meeting the travel requirement of people. This is because transportation systems increment the flow of people and products, reinforce provincial connections, give access to fundamental wellbeing and social administrations, and enhance economic improvement (Dave 2014) [3]. However, it is profoundly affected by climate change.
Climate change and transportation sector are uniquely related one is the cause, and the other is the effect and vice versa. Several studies have examined the contribution of aviation, land, and marine transport to climate change through the emission of greenhouse gasses to the atmosphere (International Energy Agency, 2008; IMO, 2008) [4,5]. Transportation sector contributes about 26% of the total global carbon dioxide emissions and is one of the few industrial sectors where emissions are still growing (Lee, 2007) [6]. Extreme weather events such as hurricanes, thunderstorm, storm surge, flooding, lightning, and rise in sea level has adverse impacts on the transport system (Nemry and Demirel, 2012;Regmi and Hanaoka, 2011) [7][8][9].
There is sufficient knowledge on how the transportation sector can contribute to climate change through emissions. However, comparatively less research was conducted on the adverse effect of global warming on the functioning of transportation. However, less attention has been given to the consequences of potential climate changes for designing, planning constructing, and operating the transportation infrastructure (ECLAC, 2011) [10]. Even from the studies conducted on climate change impact on transportation most of them focus on its physical impact. Despite their relevance, comprehensive studies of climate change effect of on the economics transportation system are rare. In this manner, this paper aims to review the economic effect of climate change on transportation sectors. Journal of Environmental Pollution and Control Climate change and transportation have a unique relationship. That means transportation infrastructure is both the driver of and driven by climate change. Transportation sector contributed about 24% of the global CO 2 production during 2003. For organization economic cooperation and developed countries members, this share was even more than 29%. From different transportation methods, road transport contributes from 18% to 23% for worldwide, whereas aviation was responsible for two third of carbon dioxide emissions (Werner, 2010) [11]. In the rich countries the share of aviation, land transportation, and marine transport is even higher. Particularly, CO 2 -emissions from aviation have been dramatically increased in the past 15 years. Carbon dioxide emissions were grown by 87% in the European Union from 1991 up to 2003. Besides, CO 2 emissions make up only 50% of greenhouse gases produced by air transportation sector.
The design, construction, and operation of transportation are weather dependent. Climate change affects the transportation sector in many ways such as permanent or temporary flooding of bridges, roads, and ports. Climate change can also increase maintenance costs by causing damage to transport infrastructure or increased wear and tear; and increasing the frequency and length of service disruption. It is clear that a reliable transportation is very important for economic development and to have healthy communities. As a result of its effect on transportation infrastructure, climate change could have far-reaching implications for development programs, particularly those that depend on transportation to gain access to the populations they serve (USAID, 2013) [12]. Alteration in precipitation and temperature because of climate change can also have an unfavorable effect on various methods of transportation resources.
Climate change profoundly affects all modes of transportation. According to Gabriel (2016), because of environmental change, transportation systems are required to become progressively worried by outrageous climates such as rise in sea level, flooding, storm surge and lightning, bringing about direct expenses inside the influenced parts and also indirect expenses from sectorial inter-linkages [13]. Climate change also increases the cost of designing, operation, construction, maintenance, rehabilitation, and repairmen costs of transportation infrastructure (Abdul, 2015) [14]. According to his study, climate change can also cause modification and change of existing flood protection and hydraulic structures measures. Moreover, extra new water powered structures or surge assurance measures are required to deal with the potential effects of climate change. According to Daniel et al. (2015) modification of the existing hydraulic structure and construction of new flood protection structures increase cost. Gordon et al. (2010) studied the cost of adopting transportation infrastructure for climate change which was commissioned by the World Bank [15]. They concluded that climate change increases the costs of new transport infrastructure because of expensive construction materials to handle the effect and higher climate adaptable design standards.
The other economic impact of climate change is that it causes delay, disruption or closure of transportation. Michael and Marko (2013) study the economic effect of extreme weather and European aviation [16]. They concluded that extreme weather like flooding; extreme temperature, hurricane, and sea level rise causes disruptions in transport network operation and services affecting normal economic activities and losses thereof.

Impact on land-based transportation
The Economic Impact on Different Mode of Transportation Economic impact on road infrastructure: The road transport infrastructure has vast economic importance. Currently, roads are carrying about 70% of the goods, and the trend is rising (Ickert et al., 2007). However, climate change adversely affects road infrastructure in many ways. Increasing temperatures due to climate change causes asphalt roads to effortlessly create breaks inside a brief short period of time after their construction. Also, high precipitation makes the new roads to create potholes while the existing one will deepen rapidly and easily (Djei-Mantey, 2014) [17]. Increased temperature in combination with higher solar radiation energy may shorten the service life of black-top road surfaces (Taylor and Philp, 2011) [18]. In this manner, poor roads resulting from substantial climate-induced potholes results in car crashes and causes the vehicle of foodstuffs and merchandise to be delayed across the whole country vehicular congested driving conditions can prompt more fuel utilization notwithstanding considerable time misfortune (Daniel et al., 2015). For example, Ghana suffered from the adverse climate change impacts on the transportation sector. EPA (2010) indicated that in Ghana 1,016 km of feeder streets destroyed, 13 bridges were collapsed and four hundred forty two culverts were destroyed in the northern district during 2007 due to extreme weather events [19].
Temperature in the earth surface will increase by 2˚C in 2050. Schiermeier (2006) also estimates that global temperatures are likely to rise from 2.5˚C to 4.0˚C by 2100. However, IPCC (2007b) estimated that global temperature will rise from one point four (1.4)˚C up to five point eight (5.8)˚C by the year 2100. In any scenario criteria, climate change will potentially increase in the future. Paul et al. (2014) have studied the potential temperature on the road in three southern African countries (Malawi, Mozambique, and Zambia) [20]. The study concluded that these three countries are facing a potential $596 million price tag for maintaining and repairing roads damaged directly related to precipitation and temperature changes from potential climate change through 2050. IPCC has also studied the future economic effect of change in climate on Boulder County's road infrastructure and concluded that the total increase in maintenance costs by 2030 would be $183 million than the current condition. Daniel et al. (2015) estimated the cost of road infrastructure construction, repairmen and maintenance in Ghana from 2020 up to 2100 by using the stressorresponse method. According to their study, it could cost Ghana about $473 million to keep up and repair damage to existing Journal of Environmental Pollution and Control Impact on rail transportation infrastructure: Climate change together with extreme weather condition such as temperature, sea level rise and precipitation affects the operability of transportation infrastructure. Railway tracks are usually designed to withstand a sensible flood and temperature range (Chapman et al., 2005) [23]. Rising temperatures beyond this range may prompt material pressure, including clasped rails (Posey, 2012) [24]. Duinmeijer and Bouwknegt (2004) studied the adverse effect of weather conditions on rail transportation infrastructure failures in Netherlands in the year 2003 [25]. It creates the impression that roughly 5 to 10% of all failures were climate-related. A large portion of the climate-related failures are caused by storm, high temperatures, lightning, icing, and storm (Koetse and Rietveld, 2007) [26].
Sea level rise (SLR) is a vital component of understanding the changing climate impact on infrastructure in countries with coastal areas (Nicholls and Cazenave, 2010) [22]. Sea level rise can flood unpaved and graveled roads adjacent to the seashore. If sea level rises by 1m in Europe will costs € 18.5 billion (Françoise and Hande, (2012) [21].
Françoise (2012) researched the impact of climate change in five European countries (Italy, German, Belgium, the Netherlands and Spain) road and rail transport infrastructures [21]. This research concluded that extreme weather increases maintenance & repair costs for the road by 30% up to 50% or 10 billion €/year. Gabriel (2017) also studied the economic impact of climate change on land-based transportation in Australia. He found that the total the costs of the impact on the road transport sector were about € 47 million per year. When analyzed across cost categories, the lion's share of costs is owing to harms to road infrastructure which is € 39 million every year (82% of the aggregate). The second largest cost component was vehicles damage (€ 5 million per pear) which accounts for 10% of the total cost. With respect to impact categories, about 19% triggered by snow and ice, about 67% of the damage was activated by rain and surge, 8% by storm and 6% by extreme temperature. Françoise and Hande (2012) studied the economic impact of climate change on road transport in Europe [21]. They found that the current extreme weather damage costs on road transportation in France, middle Europe, UK and Ireland, Eastern Europe and Scandinavia were 133 million €/year, 73 million €/year, 59 million €/y,29 million €/year,153 million €/year respectively. The other climatic factor which profoundly threatens road infrastructure is extreme precipitation which results in flooding. According to (Daniel et al., 2015) high precipitation and flooding will allow new roads to develop potholes while existing potholes will deepen fast easily. For example, Francisco (2012) found that winter cracking and potholes in five European countries namely Italy, Spain, Belgium, German and the Netherlands is due to the joint effect of deep frost and thaw-freezing cycle effects and also the function of precipitation [21]. According to his study, the maintenance cost for pothole and cracking road due to precipitation was 500 to 170 million €/year. EPA (2010) also indicated that the Accra floods in 2009 practically rolled off the asphalt on the Kaneshie Highway while flooding in Swedru thoroughly washed away parts of the main road in the town. According to (Djei-Mantey, 2014), due to this flood about $44.2 million was incurred in the greater Accra region of Ghana [17]. Madan (2009) studied the impact of the flood in Bangladesh and concluded that the damage done to the road transport infrastructure by 2007 floods was $363 million. The Aceh flood in 2007 in Indonesia made huge harm the to the transportation sector amounting to the $35 million every year. According to Françoise (2012), five European countries spend 0.65 billion €/year due to heavy rainfalls & floods [21]. roads because of environmental change impact (without adaptation scenario). Another study conducted in Australia by Gabriel (2015) also showed that the total costs of road repairers due to climate change were sum up to € 47million per year. According to Abdul (2015), the USA spends 20% more on aviation and highway infrastructure maintenance or nearly $15 billion per year for the present level of service [14]. Likewise, the European Union spends around 1.8 billion euro per year for weather-induced road transport. In addition to a direct economic cost in the transportation sector, people have been losing their precious life due to a weather-induced road accident.
According to USGCRP (2014), climate changes will probably affect water transportation infrastructure and logistics both positively and negatively [28]. For instance, an increase in temperatures lessened ice cover on lakes and streams in different locales of the world, as appeared in river Canada and Russia (Lee, 2007) [6]. It opens up possibilities for increased transport. Lofgren et al. (2000) studied the impact of climate change on domestic shipping and reasoned that there is a beneficial outcome of unnatural global warming brings about a significant diminishment in ice cover on the Great Lakes in Canada [29].
August 2003 was an extraordinary month amid an unusual hot summer in United Kingdom and made a lot of damage transportation framework (Burt, 2004) [27]. For the railways in the UK, the damage caused was the most exceedingly terrible seen since summer 1995, where there were a comparative number of clasps, 137 out of 2003 and 133 of every 1995, contrasted and the normal 30 -40 for each annum. As indicated by Daniel (2017), the present normal yearly climate-induced costs in the rail transportation in Australia were €18million. Out of the total cost, about 88% attributable to infrastructure and the remaining 12% attributed to vehicles, user, and service. With regard to the cause of damage, around 95% of all rail way damages were activated by surge and rain. Vehicle damages are activated predominantly by surge and rain (70%) and also a tempest (20%).

Impact on marine transportation
As indicated by PIAFNC (2008), another result of global warming is the diminishment of ice around the North Pole. According to Birchall (2006), this may increase the likelihood of ocean transport on the Northwest Passage for no less than a while every year [30,31]. This course may give chances to more effective transport between Europe, North-America, Asia, and Russia. Journal of Environmental Pollution and Control The other economic impact of climate change and extreme weather is transportation delay. Extreme weather-induced transportation delay and disruption is not only a painful inconvenience for the actors, but delays also induce considerable costs, for the airlines, their customers and the community as a whole (ITA, 2000) [35]. The present-day adverse weather conditions effect estimated in the UK causes 20% of all unplanned postponements which is identical to 5 million delay minutes (Thornes and Davis, 2002) [36]. In 2003 in the UK there was extreme heat during summer which resulted in buckling and hence 130 000 delayed minutes in transportation. According to Burt (2004), the cost of this 130,000 extra differ minutes caused was £2.2 million, which gives a normal cost of £16.70 per postpone minutes [27]. According to Charisse (2015), in the USA the cancellation of several flights in most of recent winter storm costs the travelers and airplanes almost $200 million. As indicated by this report Boston, Chicago, and New York, was enduring the worst part of the excess of 6,000 flights dropped on February second, 2015. This cancellation of flight costs the airline at any rate $16 million as they pay team individuals who are as of now set up, offer discounts to travelers who pick not to reschedule abandoned treks, and record for different costs and lost income.
The other cost incurred due to transportation cancelation or delay is the Social cost. It is the passengers' experienced delay from delayed or canceled flights, measured through the value of time (Michael and Marko. 2013) [16]. According to this study, if 10% of the average movements per day are affected in European aviation, then the social cost will be €828.177.
The adverse effect of climate change on marine transport is that it damages ships, ports, and harbors. Like other coastal infrastructure, harbor offices, including docks and extensions, must be raised and strengthened to oblige higher tides and tempest surges as sea levels rise (NRC, 2008) [32]. Changes in precipitation can influence transporting from numerous points of view. Flooding could close delivering channels, and expanded spillover from extraordinary precipitation occasions could make residue and garbage develop, prompting shallower and less open channels (USGCRP (2014) [28]. According to Cruce and Yurkovich (2011), shipping is becoming very sensitive to lower water levels as an annual mean or during periods of seasonal variation [33]. A thousand foot vessel loses 270 tons of limits for each inch of the lost draft, which is proportionate to about $30,000. In the United States, for instance, low water levels from 1997 and 2000 constrained shippers to lessen load tonnage by 5% to 8%. Research directed by Millerd (2007) demonstrated that falling water levels are required to increment working expenses by 1.9% to 7.4% by 2030, with costs anticipated to increment in the vicinity of 13.3% and 26.7% before the centuries over [34]. Posey (2012) likewise assessed the economic loss of low water level on shipping and found that cost will ascend in the vicinity of 5% and 22% by 2030. Cruce and Yurkovich (2011) additionally presumed that falling of water levels could harm port and marine infrastructure and increment digging costs [33]. Defra (2012) likewise examined the impact of atmosphere changes on marine transportation in Scotland. The investigation presumed that for marine transport interruption to shipping administrations working off could increment from 5% at present to 12% by 2020. There is likewise expanded danger of harm to port infrastructure, put away freight and transport systems because of flooding.
Regarding adaptation, there are diverse adaptation measures which are actualized in the road and rail transport segments to decrease climate change impacts (Daniel, 2017). As to road transport segments, the main measure is the expansion of drainage framework close by roads by 20%. In Australia for example, expanding drainage system to protect transportation infrastructure costs with total investment costs of € 130 million (Altvater et al., 2012) and yearly costs of €4 million (accepting 30 years until full devaluation) [37]. The other adaptation measure is planting tree which also incurs cost. For example, in Australia vegetation alongside streets is increased by 20%, prompting yearly workforce expenses of 14milion euro and 7milion euro material expenses (ACA, 2013) [38]. The other adaptation strategy is to use more expensive and robust material during the construction of transportation infrastructure to withstand the current climate change impact. This method also increases costs compared to the normal condition. Daniel et al. (2015) studied the monetary effect on road infrastructure adjustment in Ghana for climate change. According to this study, the cost was $473.72 million under no adaptation scenario and $678.47million under adaptation scenario. The Global Business Travel Association (2011) studied the impact of extreme weather on flight delay of corporate travel in the USA. It was discovered that there was an average daily loss of 58 million US dollar in business travel spending in every state [38].
Climate change affects the transportation sector by directly affecting air travel or air transporting infrastructure. Different huge atmospheric variables result in serious air catastrophes and regular flight plan interruptions. The essential atmospheric perils are lightning, rainstorms, icing, hail, wind shear, overwhelming precipitation, and low cloud. Extreme weather condition causes damage to aircraft and loss of life. Among the many modes of transportation, aviation is highly weather dependent. Times of extraordinary warmth can influence flying machine execution and may make airplanes confront freight limitations, flight postponements, and retractions. However, hotter climate in winter will lessen the requirement for airplane deicing (USGCRP, 2014) [28]. Storms constrained whole airports to close, as happened along the Gulf Coast amid Hurricane Katrina and all through the Northeast amid Hurricane Sandy (NRC, 2008 and USGCRP, 2014) [28,32].

Impact on Air Transportation
Cost of Adapting Transportation Infrastructure for Climate Change Journal of Environmental Pollution and Control The unique relationships between climate change and transportation infrastructure are that one is the cause and the other is the effect and vice versa. Transportation sector is both a contributor to global warming and a victim of climate change. That means transportation sector is estimated to contribute 26 percent of the total greenhouse gas emission to the atmosphere. On the other hand, climate change profoundly affects the design, construction, and life of transportation infrastructure.