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on Regulation |
| By: | Aitor Ciarreta (Universidad del Pais Vasco); Maria Paz Espinosa (Universidad del Pais Vasco) |
| Abstract: | In this paper we measure the impact of regulatory measures which affected the Spanish electricity wholesale market in the period 2002-2005. Our approach is based on the fact that regulation changes firms' incentives and therefore their market behavior. In the absence of any regulation firms would choose profit- maximizing prices on their residual demands so that the observed gap between optimal and actual prices provides a measure of the effect of regulation. Our results indicate that regulation has decreased wholesale prices considerably, but became less effective at the end of the sample period which explains the change of regulatory regime introduced in 2006. |
| Keywords: | Regulation, electricity markets, pricing |
| JEL: | L11 L13 L51 |
| Date: | 2010–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:dfaeii:201008&r=reg |
| By: | Christoph Ohler (School of Law, Friedrich-Schiller-University Jena) |
| Abstract: | - |
| Keywords: | - |
| JEL: | F33 K33 |
| Date: | 2010–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:hlj:hljwrp:04-2009&r=reg |
| By: | Ethan Cohen-Cole (Robert H Smith School of Business, 4420 Van Munching Hall, University of Maryland, College Park, MD 20742, USA.); Jonathan Morse (Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, MA, USA.) |
| Abstract: | From the onset of the 2007-2009 crisis, the Federal Reserve and the European Central Bank have aggressively lowered interest rates. Both sets of changes are at odds with an anti-inflationary stance of monetary policy; indeed, as the crisis began in August 2007 inflation expectations were high and rising, particularly in the United States. We have two additions to the literature. One, we present a model economy with a leveraged and regulated financial sector. Two, we find optimal Taylor rules for our economy that are consistent with a strong pro-inflationary reaction during financial crisis while maintaining a standard output-inflation mandate. We have three interpretations of our results. One, because the Federal Reserve has partial control over bank regulation it can exercise regulatory lenience. Two, the Fed’s stronger output orientation means that it will potentially respond more quickly when faced with constrained banks. Three, our results support procyclical capital regulation. JEL Classification: E52, E58, G18, G28. |
| Keywords: | monetary policy, capital regulation, crisis. |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20101222&r=reg |
| By: | Gagnepain, Philippe; Ivaldi, Marc |
| Abstract: | We consider a framework of contractual interactions between urban transport authorities and transport operators. We estimate simultaneously the choice of contract by the authorities and the effect of regulation on the cost reducing activity of the operators. We test whether regulatory schemes currently implemented in the industry are the observable items of a more general menu of second best contracts. We suggest that the generation process of the data we have in hand is better explained by the political aspects of regulation. Moreover, the cost reducing effort of the operators is greater under fixed-price regimes, compared to the cost-plus case. |
| Date: | 2010–05 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:22695&r=reg |
| By: | Franklin Allen (Professor, University of Pennsylvania(E-mail: allenf@wharton.upenn.edu)); Elena Carletti (Professor, European University Institute(E-mail: Elena.Carletti@EUI.eu)) |
| Abstract: | The financial sector is heavily regulated in order to prevent financial crises. The recent crisis showed how ineffective this regulation and other types of government intervention were in achieving this aim. We argue that the crisis was primarily caused by housing price bubbles. These occurred because of too loose monetary policies and the easy availability of credit resulting from the build up of large foreign exchange reserves by Asian central banks. A number of regulatory reforms are suggested. It is also argued that central banks need to have more checks and balances. Finally, the international financial architecture needs to be changed so that Asian countries do not feel the need to accumulate large foreign exchange reserves. |
| Keywords: | Bubbles, Monetary Policy, Global Imbalances |
| JEL: | G12 G21 G28 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:ime:imedps:10-e-18&r=reg |
| By: | Dagobert L. Brito; Juan Rosellón |
| Abstract: | This paper looks into various models that address strategic behavior in the supply of gas by the Mexican monopoly Pemex. The paper has three very strong technical results. First, the netback pricing rule for the price of domestic natural gas (based on a Houston benchmark price) leads to discontinuities in Pemex's revenue function. Second, having Pemex pay for the gas it uses and the gas it flares increases the value of the Lagrange multiplier associated with the gas processing constraint. Third, if the gas processing constraint is binding, having Pemex pay for the gas it uses and flares does not change the short run optimal solution for the optimization problem, so it will have no impact on short-run behavior. These results imply three clear policy recommendations. The first is that the arbitrage point be fixed by the amount of gas Pemex has the potential to supply in the absence of processing and gathering constraints. The second is that Pemex be charged for the gas it uses in production and the gas it flares. The third is that investment in gas processing and pipeline should be in a separate account from other Pemex investment. |
| Keywords: | Natural gas, strategic pricing, benchmark regulation, gas pipelines, Mexico |
| JEL: | L51 L95 Q4 Q48 |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1034&r=reg |
| By: | Mohamed Belhaj (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579) |
| Abstract: | This paper proposes a simple continuous time model to analyze capital charges for operational risk. We find that undercapitalized banks have less incentives to reduce their operational risk exposure. We view operational risk charge as a tool to reduce the moral hazard problem. Our results show, that only Advanced Measurement Approach may create appropriate incentives to reduce the frequency of operational losses, while Basic Indicator Approach appears counterproductive. |
| Keywords: | Operational Risk, Capital Requirements, Dividends, Basel Accords |
| Date: | 2010–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00504163_v1&r=reg |
| By: | Renaud Bourlès (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579); Gilbert Cette (BDF - banque de france - Banque de France, DEFI - Université de la Méditerranée - Aix-Marseille II); Jimmy Lopez (BDF - banque de france - Banque de France); Jacques Mairesse (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique); Giuseppe Nicoletti (Economics Departement - OECD) |
| Abstract: | The paper focuses on the influence of upstream competition for productivity outcomes in downstream sectors. This relation is illustrated with a neo-Schumpeterian theoretical model of innovation (Aghion et al., 1997) with market imperfections in the production of intermediate goods. In this context, upstream market imperfections create barriers to competition in downstream markets and upstream producers use their market power to share innovation rents sought by downstream firms. Thus, lack of competition in upstream markets curbs incentives to improve productivity downstream, negatively affecting productivity outcomes. We test this prediction by estimating an error correction model that differentiates the potential downstream effects of lack of upstream competition in situations close and far from the global technological frontier. We measure competition upstream with regulatory burden indicators derived from OECD data on sectoral product market regulation and the industry-level efficiency improvement and the distance to frontier variables by means of a multifactor productivity (MFP) index. Panel regressions are run for 15 OECD countries and 20 sectors over the 1985-2007 period with country, sector and year fixed effects. We find clear evidence that anticompetitive regulations in upstream sectors have curbed MFP growth downstream over the past 15 years. These effects tend to be strongest for observations (i.e. country/sector/period triads) that are close to the global technological frontier. Our results suggest that, measured at the average distance to frontier and average level of anticompetitive regulations, the marginal effect of increasing competition by easing such regulations is to increase MFP growth by between 1 and 1.5 per cent per year in the OECD countries covered by our sample. Our results are robust to changes in the way MFP and the regulatory burden indicators are constructed, as well as to variations in the sample of countries and/or sectors. |
| Keywords: | Productivity, Growth, Regulations, Competition, Catch-up |
| Date: | 2010–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00504161_v1&r=reg |
| By: | Daniel Albalate (Faculty of Economics, University of Barcelona); Germà Bel (Faculty of Economics, University of Barcelona); Joan Calzada (Faculty of Economics, University of Barcelona) |
| Abstract: | The unusual mixed public-private structure of the urban bus market in the metropolitan area of Barcelona provides an interesting context in which to analyze the management challenges and opportunities of the partial privatization of public services. Initiatives used by the public regulator to promote competition for contracts, such as short term concessions to private contractors and the removal of entry barriers, have considerable potential for improving efficiency and quality. The growth in the share of routes managed by private firms in recent years shows that privatization is a credible threat that may well stimulate improved performance among public managers. The type of reform implemented in Barcelona is of interest to all metropolitan areas large enough to operate under constant returns to scale regimes, and suitable for potential concessions of routes in segregated areas inside the metropolitan area, so as not to miss out on the benefits of economies of density. |
| Keywords: | Privatization, mixed public-private, regulation, competition JEL classification: |
| Date: | 2010–06 |
| URL: | http://d.repec.org/n?u=RePEc:ira:wpaper:201009&r=reg |
| By: | Ambec, Stefan; Crampes, Claude |
| Abstract: | The paper analyzes the interaction between a reliable source of electricity production and intermittent sources such as wind or solar power. We first characterize the first-best dispatch and investment in the two types of energy. We put the accent on the availability of the intermittent source as a major parameter of optimal capacity investment. We then analyze decentralization through competitive market mechanisms. We show that decentralizing first best requires to price electricity contingently on wind or solar availability. By contrast, traditional meters impose a second-best uniform pricing, which distorts the optimal mix of energy sources. Decentralizing the either cross-subsidy from the intermittent source to the reliable source of energy or structural integration of the two types of technology. |
| Keywords: | Renewable resources, wind electricity, solar energy, global warming |
| JEL: | D24 D61 Q27 Q32 Q42 |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:22694&r=reg |
| By: | Furquim de Azevedo, Paulo |
| Abstract: | This article reviews the Brazilian competition policy with regard to vertical restraints. Although relativelyshort, the Brazilian experience is surprisingly rich and consistent, particularly in comparison with the quitevolatile U.S. enforcement towards vertical restraints, which ranged from severe interventions to an absolutelylenient approach. A significant number of the most important antitrust cases in Brazil are related to verticalrestraints, and one of them resulted in the highest fine ever applied to a company by Brazilian authorities.Moreover, the necessary conditions to characterize an antitrust offence are relatively well set, comprisingthree main steps of investigation: a) the existence of dominant position, b) the feasibility and economicrationality of market foreclosure and raising the costs of rivals, and c) the efficiencies related to verticalcontrol. The article comprises a summary of the economic controversy regarding vertical restraints, and asummary of the main cases decided by the Brazilian Commission (Cade). |
| Date: | 2010–07–19 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:eesptd:264&r=reg |
| By: | Müller-Langer, Frank; Watt, Richard |
| Abstract: | In a recent paper, Prof. Steven Shavell (see Shavell, 2009) has argued strongly in favor of eliminating copyright from academic works. Based upon solid economic arguments, Shavell analyses the pros and cons of removal of copyright and in its place to have a pure open access system, in which authors (or more likely their employers) would provide the funds that keep journals in business. In this paper we explore some of the arguments in Shavell’s paper, above all the way in which the distribution of the sources of journal revenue would be altered, and the feasible effects upon the quality of journal content. We propose a slight modification to a pure open access system which may provide for the best of both the copyright and open access worlds. |
| Keywords: | Open Access; Academic Works; Effects of Removal of Copyrights |
| JEL: | I23 K19 |
| Date: | 2010–06–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:24095&r=reg |
| By: | J.V. Meenakshi; A Banerji |
| Abstract: | Many small wholesale grain markets in India are characterized by large numbers of sellers and a relatively small number of buyers, thereby lending the price formation process open to manipulation through collusion. Government intervention limits the extent of such manipulation through the institution of regulated markets, where the rules of exchange are clearly spelled out and the price formation process is transparent. Unfortunately, recent studies that document how agricultural markets operate—especially in Northern India—and the extent to which they hinder or serve farmers, are rare. In this paper we attempt to fill this gap by studying the functioning of a regulated basmati paddy market in the state of Haryana in North India. [Working Paper No. 91] |
| Keywords: | Wholesale, grain markets, manipulation, price formation, transparent, agricultural markets, basmati, paddy markets |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2701&r=reg |
| By: | Amigues, Jean-Pierre (Toulouse School of Economics (INRA and LERNA)); Lafforgue, Gilles (Toulouse School of Economics (INRA-LERNA)); Moreaux, Michel (Toulouse Business School and Toulouse School of Economics (INRA-LERNA)) |
| Abstract: | We characterize the optimal exploitation paths of two primary energy resources. The first one is a non-renewable polluting resource, the second one a pollution-free renewable resource. Both resources can supply the energy needs of two sectors. Sector 1 is able to reduce the potential carbon emissions generated by its non-renewable energy consumption at a reasonable cost while sector 2 cannot. Another possibility is to capture the carbon spread in the atmosphere but at a significantly higher cost. We assume that the atmospheric carbon stock cannot exceed some given ceiling and that this constraint is effective. We show that there may exist paths along which it is optimal to begin by fully capturing the sector 1's potential emission flow before the ceiling constraint begins to be effective. Also there may exist optimal paths along which both capture devices have to be activated, in which case the potential emission flow of sector 1 is firrst fully abated and next the society must resort to the atmospheric carbon reducing device. |
| JEL: | Q31 Q32 Q41 Q42 Q54 |
| Date: | 2010–02–11 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:22752&r=reg |
| By: | de Villemeur, Étienne (Toulouse School of Economics (IDEI & GREMAQ)); Vinella, Annalisa (University of Bari) |
| Abstract: | We consider electricity generation industries where thermal operators imper- fectly compete with hydro operators that manage a (scarce) water stock stored in reservoirs over a natural cycle. We explore how the exercise of intertemporal market power a¤ects social welfare and environmental quality. We show that, as compared to the outcome of spot markets, long-term contracting either exacerbates or alleviates price distortions, depending upon the consumption pattern over the water cycle. Moreover, it induces a second-order environmental e¤ect that, in the presence of a thermal competitive fringe, is critically related to the thermal mar- ket shares in the di¤erent periods of the cycle. We conclude by providing policy insights. |
| JEL: | L13 L93 |
| Date: | 2010–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:22882&r=reg |
| By: | Mireille Chiroleu-Assouline (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris); Sébastien Roussel (LAMETA - Laboratoire Montpellierain d'économie théorique et appliquée - CNRS : UMR5474 - INRA : UR1135 - CIHEAM - Université Montpellier I - Montpellier SupAgro) |
| Abstract: | According to several studies, agricultural carbon sequestration could be a relatively low cost opportunity to mitigate greenhouse gas (GHG) concentration and a promising means that could be institutionalised. However the potential for additional carbon quantities in agricultural soils is critical and comes from the agricultural firms behaviour with regards to land heterogeneity. In this paper, our aim is to set incentive mechanisms to enhance carbon sequestration by agricultural firms. A policymaker has to arrange incentives as agricultural firms have private information and do not spontaneously switch to the required practices. Moreover, a novelty in our paper is to show that the potential for additional carbon sequestration is similar to an exhaustible resource. As a result, we construct an intertemporal principal-agent model with adverse selection. Our contribution is to specify contracts in order to induce truthful revelation by the firms regarding their intrinsic characteristics towards carbon sequestration, while analytically characterizing the optimal path to sequester carbon as an exhaustible resource. |
| Keywords: | Adverse selection ; agriculture ; carbon sequestration ; incentives ; land-use |
| Date: | 2010–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00505137_v1&r=reg |
| By: | Léautier, Thomas-Olivier |
| Abstract: | One of the main purposes of the restructuring of the electric power industry in the 1990s was to "push to the market" decisions and risks associated with generation investment. Yet, markets appear to have failed to deliver "optimal" generation capacity, hence policy makers around the world are implementing various capacity provision arrangements to remedy this market failure. This articles provides a systematic analysis of these arrangements. It first examines "single market" designs, and finds that average Value of Lost Load pricing, implemented in Texas, does not restore investment incentives unless generation is perfectly competitive. Even more surprising, it finds that Operating Reserves pricing can worsen the underinvestment problem. It then examines "dual markets" designs, and finds that the two most commonly advocated approaches, the "capacity markets" and "reliability options" approaches both restore optimal investment incentives. Furthermore, both coincide if the "technical" parameters selected by the System Operator also coincide. |
| Date: | 2010–04–30 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:22628&r=reg |
| By: | Anindya Banerjee; Sushil Mohan; Bill Russell |
| Abstract: | The standard approach to modelling coffee prices ignores the impact that changes in government policies and market structures has on coffee prices. These changes have led to large structural breaks in coffee prices implying the standard estimates are biased. This paper models coffee princes in Brazil, Guatemala and India allowing for the structural breaks. The estimated model provides a consistent description of coffee prices and shows that liberalisation has benefited producers substantially in terms of a higher share of the world price of coffee. We also show that producers have benefited from higher real coffee prices following liberalisation. |
| Keywords: | coffee prices, cointegration, coffee markets, liberalisation, coffee producers, transfer costs, law of one price |
| JEL: | Q11 Q17 Q18 C32 C52 F13 F14 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:10-22&r=reg |
| By: | Richard Green; Nicholas Vasilakos |
| Abstract: | This paper presents an overview of the main issues associated with the economics of offshore wind. Investment in offshore wind systems has been growing rapidly throughout Europe, and the technology will be essential in meeting EU targets for renewable energy in 2020. Offshore wind suffers from high installation and connection costs, however, making government support essential. We review various policies used in Europe, concluding that tender-based feed-in tariff schemes, as used in Denmark, may be best for providing adequate support while minimising developers' rents. It may prove economic to build an international offshore grid by connecting wind farms belonging to different countries that are sited close to each other |
| Keywords: | offshore wind power, cost analysis, market trend |
| JEL: | D43 L13 L94 Q41 Q42 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:10-20&r=reg |