nep-ene New Economics Papers
on Energy Economics
Issue of 2005‒02‒20
ten papers chosen by
Roger Fouquet
Imperial College, UK

  1. Do hedonic price indexes change history? The case of electrification By Edquist, Harald
  2. Understanding Strategic Bidding in Restructured Electricity Markets: A Case Study of ERCOT By Ali Hortacsu; Steven L. Puller
  3. Is It All Oil? By Frank Asche; Petter Osmundsen; Maria Sandsmark
  4. Market Power in the Spanish Electricity Auction. By Aitor Ciarreta; Mari Paz Espinosa
  5. Profitable Investments or Dissipated Cash? Evidence on the Investment-Cash Flow Relationship From Oil and Gas Lease Bidding By Marianne Bertrand; Sendhil Mullainathan
  6. Non-Catastrophic Endogenous Growth with Pollution and Abatement By J.Aznar-Márquez; J.R. Ruiz-Tamarit
  7. Network Externalities: Adoption of Low Emission Technologies in the Automobile Market By Eftichios S. Sartzetakis
  8. Tradable emission permits in a federal system By Harrie A.A. Verbon; Cees A. Withagen
  9. Innovation and environmental stringency: the case of sulfur dioxide abatement By Vries,Frans P. de; Withagen,Cees
  10. Air Pollution Convergente and Economic Growth across European Countries By Francisco Álvarez; Gustavo A. Marrero; Luis Puch

  1. By: Edquist, Harald (Dept. of Economic Statistics, Stockholm School of Economics)
    Abstract: Rapid price decreases for ICT-products in the 1990s have been largely attributed to the introduction of hedonic price indexes. Would hedonic price indexing also have large effects on measured price and productivity during other technological breakthroughs? This paper investigates the impact of hedonic and matched model methods on historical data for electric motors in Sweden 1900–35. The results show that during the productivity boom of the 1920s, current prices for electric motors decreased by 13.2 and 12.2 percent per year depending on whether hedonic or matched model price indexes were used. This indicates high productivity growth in the industry producing electric motors in 1920–29. In contrast to Sweden, the US annual total factor productivity growth was only, according to current best estimates, 3.5 percent in Electric machinery compared to 5.3 percent in manufacturing in 1920–29. However, hedonic price indexes were not used to calculate US productivity. Finally, it is shown that the price decreases for electric motors in the 1920s were on par with the price decreases for ICT-equipment in the 1990s, even if hedonic indexing is used.
    Keywords: Hedonic price index; Electric motor; Productivity growth; Electrification; ICT revolution; Productivity growth; General Purpose Technologies
    JEL: L60 N60 O10 O14 O33 O40
    Date: 2005–02–16
  2. By: Ali Hortacsu; Steven L. Puller
    Abstract: We examine the bidding behavior of firms competing on ERCOT, the hourly electricity balancing market in Texas. We characterize an equilibrium model of bidding into this uniform-price divisible-good auction market. Using detailed firm-level data on bids and marginal costs of generation, we find that firms with large stakes in the market performed close to theoretical benchmarks of static, profit-maximizing bidding derived from our model. However, several smaller firms utilized excessively steep bid schedules that deviated significantly from our theoretical benchmarks, in a manner that could not be empirically accounted for by the presence of technological adjustment costs, transmission constraints, or collusive behavior. Our results suggest that payoff scale matters in firms' willingness and ability to participate in complex, strategic market environments. Finally, although smaller firms moved closer to theoretical bidding benchmarks over time, their bidding patterns contributed to productive inefficiency in this newly restructured market, along with efficiency losses due to the close-to optimal exercise of market power by larger firms.
    JEL: L1 L2 L5 L9
    Date: 2005–02
  3. By: Frank Asche; Petter Osmundsen; Maria Sandsmark
    Abstract: After opening up of the Interconnector, the liberalized UK natural gas market and the regulated Continental gas markets became physically integrated. The oil-linked Continental gas price became dominant, due to both the large volume of the Continental market and to the fact that the significant call options embedded in the complex take-or-pay contracts make these contracts the marginal source of supply. However, in an interim period – after deregulation of the UK gas market (1995) and the opening up of the Interconnector (1998) – the UK gas market had neither government price regulation nor a physical Continental gas linkage. We use this period – which for natural gas markets displays an unusual combination of deregulation and autarky – as a natural experiment to explore if decoupling of natural gas prices from prices of other energy commodities, such as oil and electricity, took place. Using monthly price data, we find a highly integrated market where wholesale demand seems to be for energy rather than a specific energy source.
    Keywords: energy markets, price interlinkages, cointegration analysis
    JEL: C32 L10 L90 Q48
    Date: 2005
  4. By: Aitor Ciarreta (Universidad del País Vasco); Mari Paz Espinosa (Universidad del País Vasco)
    Keywords: market power, electricity market
    JEL: L11 L13 L51
    Date: 2005–02–11
  5. By: Marianne Bertrand; Sendhil Mullainathan
    Abstract: The strong positive relationship between corporate cash flow and investment has been interpreted through the lens of both agency- and non-agency-based models. In this paper, we distinguish between these two interpretations using project-level data in the oil and gas industry. The specific projects we consider are auctioned-off leases that give mineral exploration rights to tracts of federal land. We find the standard positive relationship between investment and cash flow in this data, in that positive shocks to residual cash flow (netting out firm and time effects) are associated with higher spending on these leases. Interestingly, the increased investment comes from an increase in the price paid per tract with little to no change in the total number of tracts or total acreage of land bought. The positive association between price and cash flow holds even after controlling for a set of tract and firm characteristics that might be ex-ante related to expected return on a given tract. This data is most useful, however, because we can directly observe the eventual productivity of each of these projects. We find that the increase in price induced by higher cash flow is associated with lower average productivity. In fact, the total number of productive tracts does not increase with cash flow. In other words, while higher cash flow is associated with higher spending on these projects, higher cash flow does not lead to higher revenues from these projects. Combining this finding with the lack of a quantity response, we conclude that our results are best described by an agency model where managers use cash flow to simplify their job (or live a ``quiet life'') rather than ``empire-build.''
    JEL: G3
    Date: 2005–02
  6. By: J.Aznar-Márquez (Univ.Miguel Hernández d'Elx); J.R. Ruiz-Tamarit (Universitat de València)
    Abstract: When there are pollution externalities the competitive equilibrium is not Pareto-optimal nor environmentally sustainable even if abatement activities are endogenously decided. In this paper we introduce the possibility of an ecological catastrophe like the one predicted by the global climate change, imposing the constraint of an upper-limit to the pollutants stock. We characterize the socially optimal solution and study conditions for the sustainability of the balanced growth path. We find a trade-off between environmental quality and growth. The rate of growth depends negatively on the weight of environmental care in the utility function and positively on the population growth rate. We show that the emissions reduction recommended in the Kioto protocol is an appropriate policy to avoid the ecological catastrophe and ensure global efficiency and positive long-run growth.
    Keywords: Environment, Externalities, Optimal Growth, Ecological Catastrophe, Sustainability.
    JEL: C61 C62 O41 Q5
    Date: 2004
  7. By: Eftichios S. Sartzetakis (University of Macedonia (Greece)and University College of the Cariboo)
    Abstract: This paper develops a simple model of the automobile market, in which significant network and environmental externalities are present, and examines consumers' choice of technology. There are two types of technology: one that currently dominates the market but imposes significant environmental costs, and one that is expected to be introduced and has zero environmental costs. We find that, in the absence of policy intervention, the benefits of the installed base and the price diferentials in favour of the existing technology will deter new users from adopting the clean technology. We consider diferent tax policies that will induce adoption provided it is welfare warranted. First, we analyze a tax policy on the dirty technology with the tax revenues generated being used for general purposes.Under this case, we find that the tax, to induce adoption, will be greater than the marginal environmental damage. Second, we consider the tax revenue generated from the dirty technology to be earmarked towards a future subsidy to the clean technology. In this case, the tax is found to be lower than the case where revenues are used for general purposes and more interesting is the fact that the tax can be set equal to the marginal damage. Finally, we examine the case where the government credibly commits a revenue neutral tax/subsidy policy prior to the introduction of the clean technology and we find that the tax and the subsidy expenditures required could be lower relative to the case without precommitment.
    Date: 2004
  8. By: Harrie A.A. Verbon (Tilburg University and Center); Cees A. Withagen (Tilburg University and Center; Free University Amsterdam and Tinbergen Institute)
    Abstract: A system of tradable permits in the standard setting is effective in attaining the policy objective with regard to pollution reduction at the least cost. This outcome is challenged in case of a tradable permit system in a federal state with individual states having discretionary power regarding environmental policy and where pollution is transboundary across states. This paper explores the opportunities of the central authority to influence the effectiveness of the system, under different institutional arrangements, through the initial allocation of permits
    Keywords: tradable permits, trade bans, fiscal federalism.
    JEL: H21 H23 Q00
    Date: 2004
  9. By: Vries,Frans P. de; Withagen,Cees (Tilburg University, Center for Economic Research)
    Abstract: A weak version of the Porter hypothesis claims that strict environmental policy provides positive innovation incentives, hence triggering improved competitiveness and securing environmental quality. In a comparative way, this paper empirically tests this hypothesis across countries by linking environmental stringency to innovation proxied by patents in the field of SO2 abatement over the period 1970-2000. Three different models of environmental stringency are examined. Two of these models do not reveal a positive significant effect on innovation as a result of increased stringency. In the theoretically preferred model, however, a positive relationship between environmental stringency and innovation is obtained.
    JEL: L51 L94 O31
    Date: 2005
  10. By: Francisco Álvarez (Universidad Complutense de Madrid); Gustavo A. Marrero (Universidad Complutense de Madrid); Luis Puch (Universidad Complutense de Madrid. Facultad de CC. Económicas y Empresariales. Dpto. Economía Cuantitativa.)
    Abstract: This paper analyses the role of macroeconomic performance in shaping the evolution of air pollutants in a panel of European countries from 1990 to 2000. The analysis is addressed in connection with EU environmental regulation and taking into account macroeconomic performance. We start by documenting the patterns of crosscountry differences among different pollutants. We then interpret these differences within a neoclassical growth model with pollution. Three main pieces of evidence are presented. First, we analyze the existence of convergence of pollution levels within European economies. Second, we rank countries according to its performance in terms of emissions and growth. Third, we evaluate the evolution of emissions in terms of the targets signed for 2010.
    Date: 2004

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