nep-reg New Economics Papers
on Regulation
Issue of 2012‒10‒20
five papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Spatial and Temporal Heterogeneity of Marginal Emissions: Implications for Electric Cars and Other Electricity-Shifting Policies By Joshua S. Graff Zivin; Matthew Kotchen; Erin T. Mansur
  2. Bank ratings: What determines their quality? By Hau, Harald; Langfield, Sam; Marqués Ibañez, David
  3. Trade Structure, Transboundary Pollution and Multilateral Trade Liberalization: the Effects on Environmental Taxes and Welfare By Bruno Nkuiya
  4. Solving the GlobalWarming Problem: Beyond Markets, Simple Mechanisms May Help! By Martimort, David; Sand-Zantman, Wilfried
  5. Information asymmetry and deception in the investment game By Irma Clots-Figueras; Roberto Hernán; Praveen Kujal

  1. By: Joshua S. Graff Zivin; Matthew Kotchen; Erin T. Mansur
    Abstract: In this paper, we develop a methodology for estimating marginal emissions of electricity demand that vary by location and time of day across the United States. The approach takes account of the generation mix within interconnected electricity markets and shifting load profiles throughout the day. Using data available for 2007 through 2009, with a focus on carbon dioxide (CO2), we find substantial variation among locations and times of day. Marginal emission rates are more than three times as large in the upper Midwest compared to the western United States, and within regions, rates for some hours of the day are more than twice those for others. We apply our results to an evaluation of plug-in electric vehicles (PEVs). The CO2 emissions per mile from driving PEVs are less than those from driving a hybrid car in the western United States and Texas. In the upper Midwest, however, charging during the recommended hours at night implies that PEVs generate more emissions per mile than the average car currently on the road. Underlying many of our results is a fundamental tension between electricity load management and environmental goals: the hours when electricity is the least expensive to produce tend to be the hours with the greatest emissions. In addition to PEVs, we show how our estimates are useful for evaluating the heterogeneous effects of other policies and initiatives, such as distributed solar, energy efficiency, and real-time pricing.
    JEL: H23 L94 Q5
    Date: 2012–10
  2. By: Hau, Harald; Langfield, Sam; Marqués Ibañez, David
    Abstract: This paper examines the quality of credit ratings assigned to banks in Europe and the United States by the three largest rating agencies over the past two decades. We interpret credit ratings as relative assessments of creditworthiness, and define a new ordinal metric of rating error based on banks’ expected default frequencies. Our results suggest that rating agencies assign more positive ratings to large banks and to those institutions more likely to provide the rating agency with additional securities rating business (as indicated by private structured credit origination activity). These competitive distortions are economically significant and help perpetuate the existence of ‘too-big-to-fail’ banks. We also show that, overall, differential risk weights recommended by the Basel accords for investment grade banks bear no significant relationship to empirical default probabilities.
    Keywords: conflicts of interest; credit ratings; prudential regulation; rating agencies; sovereign risk
    JEL: E44 G21 G23 G28
    Date: 2012–10
  3. By: Bruno Nkuiya
    Abstract: This paper considers a trade situation where the production activities of potentially heterogeneous countries generate pollution which can cross borders and harm the well-being of all the countries involved. In each of those countries the policy market levies pollution taxes on the polluting firms and a tariff on imports in order to correct that distortion. The purpose of the paper is to investigate the effect of a reduction in the tariff on equilibrium pollution taxes and welfare. The existing literature has investigated this problem for trade between two identical countries. This paper analyzes the problem in the more realistic context where countries are not necessarily identical and trade can be multilateral. It becomes possible to show what bias is introduced when those two realities are neglected. I find that a tariff reduction can actually lower output; it can also lower welfare even if pollution is purely local.
    Keywords: Trade liberalization, Pollution taxes, Transboundary pollution, Heterogeneous countries, Imperfect markets
    JEL: D43 F18 H23 Q58
    Date: 2012
  4. By: Martimort, David; Sand-Zantman, Wilfried (Toulouse School of Economics (GREMAQ and IDEI))
    Abstract: This paper discusses the feasibility and performances of simple mechanisms to implement international environmental agreements in the multilateral externalities context of global warming. Asymmetric information and voluntary participation by sovereign and heterogenous countries are key constraints on the design of those agreements. Mechanisms must prevent two sorts of free-riding problems - free riding in effort provision and free riding in participation. As markets might fail to solve simultaneously those two problems, we construct instead a simple menu of options that trades off the provision of incentives for participating countries and the provision of incentives to participate.With such mechanism, all countries voluntary contribute to a fund, although at different intensities, but only the most efficient ones effectively reduce their pollution below its “business as usual” level.
    Keywords: Free-riding, environmental agreements, asymmetric information, mechanism design.
    Date: 2012–10
  5. By: Irma Clots-Figueras; Roberto Hernán; Praveen Kujal
    Abstract: Several situations in our daily interactions are characterized by uncertainty and asymmetric information regarding the final outcomes. For example, an investor may overstate a project’s value, or a superior may choose to under, or over, state the gains from a project to a subordinate. We modify the standard investment game to study the effect of possible deception, i.e. over-, or under-, statement of the true value, on investee (and investor) behavior. We find that deception is prevalent and around 66% of the investors send false messages. Investors both over-, and under-, state the true value of the multiplier, k. We elicit investee beliefs and find that investees are naive in that almost half of them believe the message they receive. Meanwhile, a large proportion of investors think that sending a message was useful. The introduction of the possibility of deception does not affect trust or trustworthiness on average, but deceivers make the deceived worse off, return less and are more likely to report lying to avoid harming others. Finally, an increase in information asymmetry increases deception
    Date: 2012–10

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