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on Regulation |
| By: | Hobbs, B.F.; Bushnell, J.; Wolak, F.A. |
| Abstract: | In electricity, “downstream” CO2 regulation requires retail suppliers to buy energy from a mix of sources so that their weighted emissions satisfy a standard. It has been argued that such “load-based” regulation would solve emissions leakage, cost consumers less, and provide more incentive for energy efficiency than traditional source-based cap-andtrade programs. Because pure load-based trading complicates spot power markets, variants (GEAC and CO2RC) that separate emissions attributes from energy have been proposed. When all energy producers and consumers come under such a system, these load-based programs are equivalent to source-based trading in which emissions allowances are allocated by various rules, and have no necessary cost advantage. The GEAC and CO2RC systems are equivalent to giving allowances free to generators, and requiring consumers either to subsidize generation or buy back excess allowances, respectively. As avoided energy costs under source-based and pure load-based trading are equal, the latter provides no additional incentive for energy efficiency. The speculative benefits of load-based systems are unjustified in light of their additional administrative complexity and cost, the threat that they pose to the competitiveness and efficiency of electricity spot markets, and the complications that would arise when transition to a federal cap-and-trade system occurs. |
| Keywords: | Emissions trading, greenhouse gas regulation, electricity market models |
| JEL: | Q52 Q54 Q58 |
| Date: | 2010–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1018&r=reg |
| By: | Junichi Suzuki |
| Abstract: | I empirically examines the anticompetitive effects of land use regulation by using microdata on midscale chain hotels in Texas. I construct a dynamic entry-exit model of midscale hotel chains. By endogenizing their entry decisions, the model explicitly considers hotel chains' reactions to the stringency of land use regulation. Estimation results indicate that imposing stringent regulation increases cost enough to affect hotel chains' entry decisions. Although hotel chains are the immediate payers of the increased entry cost, incumbents shift a part of their cost increase onto consumers by exploiting their increased market power. (JEL: R3, L1, L5) |
| Keywords: | Land use regulation, zoning, barrier to entry, lodging industry |
| JEL: | R3 L1 L5 |
| Date: | 2010–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-400&r=reg |
| By: | Winslow Strong; Jean-Pierre Fouque |
| Abstract: | In 1999 Robert Fernholz observed an inconsistency between the normative assumption of existence of an equivalent martingale measure (EMM) and the empirical reality of diversity in equity markets. We explore a method of imposing diversity on market models by a type of antitrust regulation that is compatible with EMMs. The regulatory procedure breaks up companies that become too large, while holding the total number of companies constant by imposing a simultaneous merge of other companies. As an example, regulation is imposed on a market model in which diversity is maintained via a log-pole in the drift of the largest company. |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1003.5650&r=reg |
| By: | Jean Tirole |
| Abstract: | The recent crisis was characterized by massive illiquidity. This paper reviews what we know and don't know about illiquidity and all its friends: market freezes, fire sales, contagion, and ultimately insolvencies and bailouts. It first explains why liquidity cannot easily be apprehended through a single statistics, and asks whether liquidity should be regulated given that a capital adequacy requirement is already in place. The paper then analyzes market breakdowns due to either adverse selection or shortages of financial muscle, and explains why such breakdowns are endogenous to balance sheet choices and to information acquisition. It then looks at what economics can contribute to the debate on systemic risk and its containment. Finally, the paper takes a macroeconomic perspective, discusses shortages of aggregate liquidity and analyses how market value accounting and capital adequacy should react to asset prices. It concludes with a topical form of liquidity provision, monetary bailouts and recapitalizations, and analyses optimal combinations thereof; it stresses the need for macro-prudential policies. |
| Keywords: | liquidity, contagion, bailouts, regulation |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:303&r=reg |
| By: | Holmberg, P.; Newbery, D. |
| Abstract: | The supply function equilibrium provides a game-theoretic model of strategic bidding in oligopolistic wholesale electricity auctions. This paper presents an intuitive account of current understanding and shows how welfare losses depend on the number of firms in the market and their asymmetry. Previous results and general recommendations for divisible-good/multi-unit auctions provides guidance on the design of the auction format, setting the reservation price, the rationing rule, and restrictions on the offer curves in wholesale electricity auctions. |
| Keywords: | Wholesale electricity markets, supply function equilibria, auction design, competition policy, market regulation |
| JEL: | D43 D44 C62 L94 |
| Date: | 2010–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1016&r=reg |
| By: | Mourad Afif; Sandrine Spaeter |
| Abstract: | In this paper, we focus on the adverse selection issue that prevails in an economy when the regulator is not able to observe the type of the abate- ment costs of the firms. The regulator decides the total level of emission that minimizes the total social cost and he sells them to the firms at some di¤erentiated prices. When firms can hide their type relative to their true abatement costs, prices must not only minimize the social cost of the envir- onmental policy. They must also induce the firms to reveal their true type. A striking point of our model is that there is no participation constraint for firms are compelled to be actors of the environmental policy. Another original result concerns the rent, which still benefits to low-cost types, but which appears to be a fee paid by high-cost types. |
| Keywords: | Regulation; adverse selection; emission permits; abatement costs; price differentiation. |
| JEL: | D82 H23 Q52 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2010-07&r=reg |
| By: | Robert E Verrecchia |
| Abstract: | The controversy about the choice among accounting alternatives is often based on arguments suggesting heuristic behaviour by market participants and firm managers. Debates focus on whether accounting methodology systematically alters reported earnings and whether this effect may add or subtract economic value independently of any effect on underlying cash flows. Arguments based on heuristic behaviour of firms’ management and investors influence decisions about the applicability of standards and regulation. |
| Keywords: | earnings reporting; heuristic behaviour; fair value; disclosure |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:302&r=reg |
| By: | Hyun Song Shin |
| Abstract: | Securitization was meant to disperse credit risk to those who were better able to bear it. In practice, securitization appears to have concentrated the risks in the financial intermediary sector itself. This paper outlines an accounting framework for the financial system for assessing the impact of securitization on financial stability. If securitization leads to the lengthening of intermediation chains, then risks becomes concentrated in the intermediary sector with damaging consequences for financial stability. Covered bonds are one form of securitization that do not fall foul of this principle. I discuss the role of countercyclial capital requirements and the Spanish-style statistical provisioning in mitigating the harmful effects of lengthening intermediation chains. |
| Keywords: | leverage, financial intermediation chains, financial stability |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:304&r=reg |
| By: | Kraay, Aart; Tawara, Norikazu |
| Abstract: | Many highly-disaggregated cross-country indicators of institutional quality and the business environment have been developed in recent years. The promise of these indicators is that they can be used to identify specific reform priorities that policymakers and aid donors can target in their efforts to improve institutional and regulatory quality outcomes. Doing so however requires evidence on the partial effects of these many very detailed variables on outcomes of interest, for example, investor perceptions of corruption or the quality of the regulatory environment. In this paper we use Bayesian Model Averaging (BMA) to systematically document the partial correlations between disaggregated indicators and several closely-related outcome variables of interest using two leading datasets: the Global Integrity Index and the Doing Business indicators. We find major instability across outcomes and across levels of disaggregation in the set of indicators identified by BMA as important determinants of outcomes. Disaggregated indicators that are important determinants of one outcome are on average not important determinants of other very similar outcomes. And for a given outcome variable, indicators that are important at one level of disaggregation are on average not important at other levels of disaggregation. These findings illustrate the difficulties in using highly-disaggregated indicators to identify reform priorities. |
| Keywords: | Statistical&Mathematical Sciences,Environmental Economics&Policies,Economic Theory&Research,Governance Indicators,Econometrics |
| Date: | 2010–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:5254&r=reg |
| By: | Blonz, Joshua (Resources for the Future); Burtraw, Dallas (Resources for the Future); Walls, Margaret A. (Resources for the Future) |
| Abstract: | Uncertainty is a fundamental characteristic of climate change. This paper focuses on uncertainty that is introduced in the implementation of policy, especially as it affects the level and distribution of the burden on households that results from the allocation of emissions allowances. We examine the Waxman–Markey bill (H.R. 2454), with bookend scenarios labeled optimistic and pessimistic. The scenarios vary outcomes associated with allocations to local distribution companies, investments in electricity energy efficiency and technology development. We introduce a third scenario that allocates a substantial portion of allowance value directly to households. We find the average consumer surplus loss per household in 2016 in the optimistic scenario to be $136 and the allowance price is as low as $13.20 per ton. In the pessimistic scenario, the consumer surplus loss rises to $413, with an allowance price of $23.43 per ton. Allocation of allowance value directly back to households provides an intermediate, but more certain, result. |
| Keywords: | cap-and-trade, allocation, distributional effects, cost burden, equity, regulation,local distribution companies |
| JEL: | H22 H23 Q52 Q54 |
| Date: | 2010–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-10-12&r=reg |
| By: | Hassan Benchekroun; Halis Murat Yildiz |
| Abstract: | We determine the impact of free trade on the sustainability of an international environmental agreement (IEA) and incorporate it into the assessment of the net benefits of opening up to free trade. We show that such an analysis can reverse the conclusions reached within a standard one-shot game framework. First, we examine a one shot game and argue that the benefits from an increase in economic activity due to free trade outweigh the extra cost of free trade associated with larger environmental damage. Then, we analyze the infinite repetition of the one-shot game where countries can use trigger strategies and show that there exist circumstances where an IEA is sustainable under autarky but not under free trade. This aggravates the environmental damages caused by free trade and leads to the possibility that autarky may welfare dominate free trade. This conclusion remains valid even when countries adopt the most cooperative environmental policy when the "fully cooperative" environmental policy is not sustainable. |
| JEL: | F12 Q56 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:mcl:mclwop:2009-10&r=reg |