nep-reg New Economics Papers
on Regulation
Issue of 2010‒09‒03
fifteen papers chosen by
Oleg Eismont
Russian Academy of Sciences

  1. Smart Regulation for Smart Grids By Leonardo Meeus; Marcelo Saguan; Jean-Michel Glachant; Ronnie Belmans
  2. Capital Regulation after the Crisis: Business as Usual? By Martin Hellwig
  3. Voluntary Environmental Regulation in Developing Countries: Mexico's Clean Industry Program By Blackman, Allen; Lahiri, Bidisha; Pizer, William A.; Planter, Marisol Rivera; Piña, Carlos Muñoz
  4. The Impact of Firm Entry Regulation on Long-living Entrants By Susanne Prantl
  5. Regulatory Choice with Pollution and Innovation By Charles D. Kolstad
  6. A Structural Solution to Roaming in Europe By Tony Shortall
  7. Toward a Smart EU Energy Policy: Rationale and 22 Recommendations By Jean-Michel Glachant; Robert Grant; Manfred Hafner; Jacques de Jong
  8. The Creation of a Market for Retail Electricity Supply By Ramteen Sioshansi
  9. Legal Feasibility of Schengen-like Agreements in European Energy Policy: The Cases of Nuclear Cooperation and Gas Security of Supply By Nicole Ahner; Jean-Michel Glachant; Adrien de Hauteclocque
  10. The Gas Transportation Network as a ‘Lego’ Game: How to Play with It? By Jean Michel Glachant; Michelle Hallack
  11. The Economics of Carbon Offsets By James B. Bushnell
  12. An Econometric Analysis of 3G Auction Spectrum Valuations By Erik Bohlin; Gary Madden; Aaron Morey
  13. Efficiency of Individual Transferable Quotas (ITQs) when Fishers are able to Choose Vessel Sizes: An Experimental Approach By Keisaku Higahsida
  14. The Squam Lake Report: Fifteen Economists in Search of Financial Reform By Alan S. Blinder
  15. Three Key Elements of Post-2012 International Climate Policy Architecture By Olmstead, Sheila M.; Stavins, Robert N.

  1. By: Leonardo Meeus; Marcelo Saguan; Jean-Michel Glachant; Ronnie Belmans
    Abstract: Climate change and security of supply policies are driving us towards a decarbonization of the electricity system. It is in this context that smart grids are being discussed. Electricity grids, and hence their regulatory frameworks, have a key role to play in facilitating this transformation of the electricity system. In this paper, we analyze what is expected from grids and what are the regulatory tools that could be used to align the incentives of grid companies and grid users with what is expected from them. We look at three empirical cases to see which regulatory tools have already been applied and find that smart grids need a coherent regulatory framework addressing grid services, grid technology innovation and grid user participation to the ongoing grid innovation. The paper concludes with what appears to be a smart regulation for smart grids.
    Keywords: Regulation, innovation, electricity, grids, transmission, distribution
    Date: 2010–05–14
  2. By: Martin Hellwig (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The paper discusses the reform of capital regulation of banks in the wake of the financial crisis of 2007/2009. Whereas the Basel Committee on Banking Supervision seems to go for marginal changes here and there, the paper calls for a thorough overhaul, moving away from risk calibration and raising capital requirements very substantially. The argument is based on the observation that the current system of risk-calibrated capital requirements, in particular under the model-based approach, played a key role in allowing banks to be undercapitalized prior to the crisis, with strong systemic effects for deleveraging multipliers and for the functioning of interbank markets. The argument is also based on the observation that the current system has no theoretical foundation, its objectives are ill-specified, and its effects have not been thought through, either for the individual bank or for the system as a whole. Objections to substantial increases in capital requirements rest on arguments that run counter to economic logic or are themselves evidence of moral hazard and a need for regulation.
    Keywords: financial crisis, Basel Accord, banking regulation, capital requirements, modelbased approach, systemic risk
    JEL: G21 G28
    Date: 2010–08
  3. By: Blackman, Allen (Resources for the Future); Lahiri, Bidisha; Pizer, William A. (Resources for the Future); Planter, Marisol Rivera; Piña, Carlos Muñoz
    Abstract: Because conventional command-and-control environmental regulation often performs poorly in developing countries, policymakers are increasingly experimenting with alternatives, including voluntary regulatory programs. Research in industrialized countries suggests that such programs are sometimes ineffective because they mainly attract relatively clean participants free-riding on unrelated pollution control investments. We use plant-level data on more than 100,000 facilities to analyze the Clean Industry Program, Mexico’s flagship voluntary regulatory initiative. We seek to identify the drivers of participation and to determine whether the program improves participants’ environmental performance. Using data from the program’s first decade, we find that plants recently fined by environmental regulators were more likely to participate, but that after graduating from the program, participants were not fined at a substantially lower rate than nonparticipants. These results suggest that although the Clean Industry Program attracted dirty plants under pressure from regulators, it did not have a large, lasting impact on their environmental performance.
    Keywords: voluntary environmental regulation, duration analysis, propensity score matching, Mexico
    JEL: Q56 Q58 O13 O54 C41
    Date: 2010–08–25
  4. By: Susanne Prantl (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: What is the impact of firm entry regulation on sustained entry into self-employment? How does firm entry regulation influence the performance of long-living entrants? In this paper, I address these questions by exploiting a natural experiment in firm entry regulation. After German reunification, East and West Germany faced different economic conditions, but fell under the same law that imposes a substantial mandatory standard on entrepreneurs who want to start a legally independent firm in one of the regulated occupations. The empirical results suggest that the entry regulation suppresses long-living entrants, not only entrants in general or transient, short-lived entrants. This effect on the number of long-living entrants is not accompanied by a counteracting effect on the performance of long-living entrants, as measured by firm size several years after entry.
    Keywords: Firm entry regulation, sustained entry, self-employment, firm size
    JEL: K20 L25 L26 L50 M13 P52
    Date: 2010–07
  5. By: Charles D. Kolstad
    Abstract: This paper develops a simple model of a polluting industry and an innovating firm. The polluting industry is faced with regulation and costly abatement. Regulation may be taxes or marketable permits. The innovating firm invests in R&D and develops technologies which reduce the cost of pollution abatement. The innovating firm can patent this innovation and use a licensing fee to generate revenue. In a world of certainty, the first best level of innovation and abatement can be supported by either a pollution tax or a marketable permit. However, the returns to the innovator from innovation are not the same under the two regimes. A marketable permit system allows the innovator to capture all of the gains to innovation; a tax system involves sharing the gains of innovation between the innovator and the polluting industry.
    JEL: L51 Q55 Q58
    Date: 2010–08
  6. By: Tony Shortall
    Abstract: This paper suggests that international roaming markets suffer from structural flaws in the way that roaming agreements are established in Europe. The initial roaming interventions by the European Commission in 2007 have been very welfare enhancing and the transfer of producer surplus to consumers has brought significant benefits to end users. Nevertheless, there are clear opportunity costs of maintaining and/or extending the current roaming Regulation. The price for wholesale roaming services in a given country is driven principally by the amount of traffic that an operator is willing to send back to the country requesting a price offer and not on the basis of the roaming services requested. The paper suggests that by breaking the link between the prices offered in one country and the volume of returned traffic will enable the wholesale market for international roaming to operate competitively. It is further suggested that retail price regulation is unwarranted when the wholesale market can operate competitively irrespective of the issue of the retail elasticity of demand for these services. Preliminary, suggestions are put forward as to how policy makers could transition from the current regime to a future market based regime by putting a number of required enablers in place.
    Keywords: Roaming regulation, mobile telephony, European single market
    Date: 2010–07–20
  7. By: Jean-Michel Glachant; Robert Grant; Manfred Hafner; Jacques de Jong
    Abstract: We are in desperate need of an EU Energy Policy. The facts are that, yes, there is indeed an EU Energy Policy. It is a policy based on a vision, a vision with three components. The policy is aiming for “markets, competition and efficiency”, it is equally focussing on “a sustainable energy economy”, and thirdly, it wants to “secure the EU’s energy supply”. Three objectives, three separate action lines. Balancing the three objectives in an integrated approach is challenging and difficult. To what extent is the market approach consistent with the other two policy packages? What impact does a climate package with tradable emission rights and non-tradable targets for green energy have on the market designs for gas and electricity? Are the necessary investments in new pipes and wires for securing our energy supplies sufficiently coming under the prevailing regulatory framework? Or, to put it differently; are we smart enough in the way in which we are making implementing steps in order to meet our stated objectives? Our paper ends with a proposed new vision and a set of 22 recommendations to the new European Commission.
    Keywords: energy policy; climate change; security of energy supply; EU internal marke
    Date: 2010–06–23
  8. By: Ramteen Sioshansi
    Abstract: This paper provides a survey of the history and future of storage development in the US and policy and analytical questions relating to storage. The paper discusses the history of storage development in the US, and some of the limitations in how storage investment was justified beginning in the 1970s, when much of the US's current storage capacity was built. Then we discuss potential uses of storage beyond serving as an alternative to peaking capacity and uses of storage by entities other than a traditional vertically-integrated utility. After we lay out some policy and research questions related to energy storage and show how questions such as regulation, market products, and ownership can greatly affect the true value of storage and incentives for and efficiency of storage use and investment.
    Keywords: Energy storage, electricity markets, investment incentives
    Date: 2010–07–12
  9. By: Nicole Ahner; Jean-Michel Glachant; Adrien de Hauteclocque
    Abstract: European energy policy is characterized by a complex allocation of authority between the European Union and its Member States which results in an intricate interplay of regulatory competence. Knowing the difficulties European countries face in coordinating and proposing common solutions in the area of energy, there is the urgent need to question the legal foundations underlying the decisionmaking process. Institutional paralysis, low reactivity to events and changes as well as systematic political horse-trading across all questions call for an alternative framework allowing some pioneering Member States to promote ad hoc common policies escaping the formal and procedural requirements of EU law. Our paper assesses the legal feasibility of short-run differentiation by means of partial international agreements inspired by the Schengen regime, namely entirely outside the EU framework. The key challenge from a legal point of view is to assess the substantive compatibility of such agreements in energy with the existing rules of the Union. Short run differentiation in energy cannot indeed be assessed at a high level of generalities. We therefore take two areas where legally-binding coordination at the sub-Union level is often called for: nuclear policy and gas security of supply. The possible substantive content of such cooperation is derived from the economic and political literature before legal feasibility is assessed. Our findings suggest that the scope for such agreements is limited for security of gas supply whereas it could be an improved cooperation device in certain areas of nuclear policy.
    Keywords: EU energy policy, Schengen agreement, flexible integration, nuclear cooperation, gas security of supply
    Date: 2010–05–12
  10. By: Jean Michel Glachant; Michelle Hallack
    Abstract: Gas transportation networks exhibit a quite substantial variety of technical and economical properties ranges roughly from an entrenched natural monopoly to near to an open competition platform. This empirical fact is widely known and accepted. However the corresponding frame of network analysis is lacking or quite fuzzy. As an infrastructure, can a gas network evolve or not from a natural monopoly (an essential facility) to an open infrastructure (a “highway” facility)? How can it be done with the same transportation infrastructure components within the same physical gas laws? Our paper provides a unified analytical frame for all types of gas transportation networks. It shows that gas transport networks are made of several components which can be combined in different ways. This very “lego property” of gas networks permits different designs with different economic properties while a certain infrastructural base and set of gas laws is common to all transportation networks. Therefore the notion of “gas transportation network” as a general and abstract concept does not have robust economic properties. The variety and modularity of gas networks come from the diversity of components, the variety of components combinations and the historical inclusion of components in the network. First, a gas network can combine different types of network components (primary or secondary ones). Second, the same components can be combined in different ways (notably regarding actual connections and flow paths). Third, as a capital-intensive infrastructure combining various specific assets, gas transportation networks show strong “path dependency” properties as they evolve slowly over time by moving from an already existing base. The heterogeneity of gas networks as sets of components comes firstly from the heterogeneity of the network components themselves, secondly from the different possibilities to combine these components and thirdly from the ‘path dependence’ character of gas network constructions. These three characteristics of gas networks explain the diversity of economic proprieties of the existent gas networks going from natural monopoly to competitive markets.
    Keywords: gas transport networks, regulatory economics, network regulation
    JEL: L5 L29 D42 D61 D6
    Date: 2010–05–13
  11. By: James B. Bushnell
    Abstract: Although international programs for carbon offsets play an important role in current and prospective climate-change policy, they continue to be very controversial. Asymmetric information creates several incentive problems, include adverse selection and moral hazard, in offset markets. The current regulatory focus on additionality tends to paint all these problems with a broad brush without proper consideration of the context or their implications.
    JEL: H23 L14 L5 Q54
    Date: 2010–08
  12. By: Erik Bohlin; Gary Madden; Aaron Morey
    Abstract: Scarce radio spectrum is assigned to mobile network operators (MNOs) by national regulatory authorities (NRAs). Spectrum is usually assigned by beauty contest or an auction. The process requires that winners make a payment to the government. MNOs seek scarce spectrum to enable the provision of wireless services for profit. While MNOs are imperfectly aware of their costs, NRAs rely solely on MNOs for this information. As such, NRAs set spectrum assignment conditions (including minimum bid price) largely ignorant of MNO operating conditions. This study examines the performance of 3G auction outcomes in terms of the prices paid by winners via an econometric analysis of a unique sample of national 3G spectrum auctions. These winning bids depend on national and mobile market conditions, spectrum package attributes, license process, and post-award operator requirements. Finally, model estimation accounts for the censored nature of these data.
    Keywords: Mobile telephone markets, spectrum allocation, spectrum bid price
    JEL: D44 L96
    Date: 2010–07–01
  13. By: Keisaku Higahsida (School of Economics, Kwansei Gakuin University)
    Abstract: Employing an experimental approach, this paper examines whether the efficiency of fishery management can be achieved under Individual Transferable Quotas (ITQs) regimes, when fishers can choose vessel sizes. In addition to the most common types of experiments for trading permits, we analyze the situation in which the subjects choose one from two vessel types: a large-scale or a small-scale. The fixed cost for the large-scale is higher than that for the small-scale, whereas the variable cost for the large-scale is lower. We find that the average trading price converges to the theoretical equilibrium price given numbers of both types of vessels. We also find that vessels are chosen rationally in the sense that, the greater is the average trading price minus the theoretical equilibrium price in the past periods, the less incentive subjects have to invest in large-scale vessels. Moreover, quota prices in the first period could influence not only the quota prices but also the numbers of both types of vessels in the ensuing periods, and initial allocation could affect the rational choice of vessels by subjects/fishers.
    Keywords: Individual Transferable Quotas, tradable permits, experiment, double auction
    JEL: C91 Q22 Q28
    Date: 2010–06
  14. By: Alan S. Blinder (Princeton University)
    Abstract: The Squam Lake Report is a volume by economists for economists. It offers the fruits of the labors of 15 top economists who met at Squam Lake, New Hampshire, to discuss financial reform. While somewhat disjointed, and avoiding many important issues, the book is nonetheless a tour du force. Its many recommendations derive from two basic principles: that reformers need to think systemically, and that third-party costs stemming from systemic risk need to be internalized. And its approach is just what you would expect from a group of academic economists. It asks (and answers) questions like: Where did incentives go wrong? What were the sources of market failure? How can we better protect society against negative externalities?
    Keywords: market failure, financial reform, finance reform, negative externalities, third party coats
    JEL: B40 D02 D62 E20 A31
    Date: 2010–08
  15. By: Olmstead, Sheila M. (Resources for the Future); Stavins, Robert N.
    Abstract: We describe three essential elements of an effective post-2012 international global climate policy architecture: a means to ensure that key industrialized and developing nations are involved in differentiated but meaningful ways; an emphasis on an extended time path of targets; and inclusion of flexible market-based policy instruments to keep costs down and facilitate international equity. This architecture is consistent with fundamental aspects of the science, economics, and politics of global climate change; addresses specific shortcomings of the Kyoto Protocol; and builds upon the foundation of the United Nations Framework Convention on Climate Change.
    Keywords: global climate change, global warming, policy architecture, Kyoto Protocol
    JEL: Q54 Q58 Q48 Q39
    Date: 2010–06–18

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