nep-reg New Economics Papers
on Regulation
Issue of 2012‒11‒11
eight papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Information provision by regulated public transport companies By De Borger, Bruno; Fosgerau, Mogens
  2. Unbundling the incumbent: Evidence from UK broadband By Nardotto, Mattia; Valletti, Tommaso; Verboven, Frank
  3. Investment in transport capacity and regulation of regional monopolies in natural gas commodity markets By Farid Gasmi; Juan Daniel Oviedo
  4. Bank ratings: what determines their quality? By Harald Hau; Sam Langfield; David Marqués-Ibáñez
  5. Greenhouse Gas Abatement Cost Curves of the Residential Heating Market – a Microeconomic Approach. By Dieckhoener, Caroline; Hecking, Harald
  6. Sharing the Cost of Redundant Items By Jens Leth Hougaard; Hervé Moulin
  7. How a fast lane may replace a congestion toll By Fosgerau, Mogens
  8. The socially optimal energy transition in a residential neighbourhood in the Netherlands By Arie ten Cate

  1. By: De Borger, Bruno; Fosgerau, Mogens
    Abstract: We study the interaction between pricing, frequency of service and information provision by public transport firms offering scheduled services, and we do so under various regulatory regimes. The model assumes that users can come to the bus stop or rail station at random or they can plan their trips; the fraction of users who plan their trips is endogenous and depends on the frequency of service and on the quality of information provided. Four institutional regimes are considered, reflecting various degrees of government regulation. A numerical example illustrates the theoretical results. Findings include the following. First, fare regulation induces the firm to provide less frequency and less information than is socially optimal. Second, if information and frequency did not affect the number of planning users a higher fare always induces the firm to raise both frequency and the quality of information. With endogenous planning, however, this need not be the case, as the effect of higher fares strongly depends on how frequency and information quality affect the number of planners. Third, a profit-maximizing firm offers more information than a fare-regulated firm. Fourth, if the agency regulates both the fare and the quality of information then more stringent information requirements induce the firm to reduce frequency; this strongly limits the welfare improvement of information regulation. Finally, of all institutional structures considered, socially optimal fares, frequency and quality of information stimulate passengers least to plan their trips, because the high frequency offered reduces the benefits of trip planning.
    Keywords: Optimal information provision; Price regulation; Scheduled services
    JEL: D21 R40 D82
    Date: 2012
  2. By: Nardotto, Mattia; Valletti, Tommaso; Verboven, Frank
    Abstract: We consider the impact of a regulatory process forcing an incumbent telecom operator to make its local broadband network available to other companies (local loop unbundling, or LLU). Entrants are then able to upgrade their individual lines and offer Internet services directly to customers. Employing a very detailed dataset covering the whole of the UK, we find that over the course of time, many entrants have begun to take advantage of LLU. However, unbundling has little or no effect on broadband penetration, compared to those areas where the loops are not unbundled. LLU entry instead has a strongly positive impact on the quality of the service provided. We also assess the impact of competition from an alternative form of technology (cable) which is not subject to regulation, and what we discover is that inter-platform competition has a positive impact on both penetration and quality.
    Keywords: broadband; competition; entry; local loop unbundling; regulation; telecommunications
    JEL: L51
    Date: 2012–10
  3. By: Farid Gasmi; Juan Daniel Oviedo
    Abstract: This paper develops a model of the regulator-regulated firm relationship in a regional natural gas commodity market which can be linked to a competitive market by a pipeline. We characterize normative policies under which the regulator, in addition to setting the level of the capacity of the pipeline, regulates the price of gas, under asymmetric information on the firm’s technology, and may (or may not) operate (two-way) transfers between consumers and the firm. We then focus on capacity and investigate how its level responds to the regulator’s taking account of the firm’s incentive compatibility constraints. The analysis yields some insights on the role that transport capacity investments may play as an instrument to improve the efficiency of geographically isolated markets.
    Date: 2012–10–29
  4. By: Harald Hau (University of Geneva); Sam Langfield (European Systemic Risk Board Secretariat; UK Financial Services Authority); David Marqués-Ibáñez (European Central Bank)
    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 contribute to 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. JEL Classification: G21, G23, G28
    Keywords: Rating agencies, credit ratings, conflicts of interest, prudential regulation
    Date: 2012–10
  5. By: Dieckhoener, Caroline (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Hecking, Harald (Energiewirtschaftliches Institut an der Universitaet zu Koeln)
    Abstract: In this paper, we develop a microeconomic approach to deduce greenhouse gas abatement cost curves of the residential heating sector. By accounting for household behavior, we find that welfare-based abatement costs are generally higher than pure technical equipment costs. Our results are based on a microsimulation of private households' investment decision for heating systems until 2030. The households' investment behavior in the simulation is derived from a discrete choice estimation which allows investigating the welfare costs of different abatement policies in terms of the compensating variation and the excess burden. We simulate greenhouse gas abatements and welfare costs of carbon taxes and subsidies on heating system investments until 2030 to deduce abatement curves. Given utility maximizing households, our results suggest a carbon tax to be the welfare efficient policy. Assuming behavioral misperceptions instead, a subsidy on investments might have lower marginal greenhouse gas abatement costs than a carbon tax.
    Keywords: Household behavior; discrete choice; Pigou; greenhouse gas abatement costs
    JEL: C35 C61 Q47 Q53 R21
    Date: 2012–10–29
  6. By: Jens Leth Hougaard (Institute of Food and Resource Economics, University of Copenhagen); Hervé Moulin (Department of Economics, Rice University)
    Abstract: We ask how to share the cost of finitely many public goods (items) among users with different needs: some smaller subsets of items are enough to serve the needs of each user, yet the cost of all items must be covered, even if this entails inefficiently paying for redundant items. Typical examples are network connectivity problems when an existing (possibly inefficient) network must be maintained. We axiomatize a family of simple usage indices, one for each agent and for each item, measuring the relative worth of this item across agents, and generating cost sharing rules additive in costs.
    Keywords: Cost sharing; Redundant costs; Connection networks; Connectivity
    JEL: C71 D30 D85 M41
    Date: 2012–09
  7. By: Fosgerau, Mogens
    Abstract: This paper considers a congested bottleneck. A fast lane reserves a more than proportional share of capacity to a designated group of travelers. Travelers are otherwise identical and other travelers can use the reserved capacity when it would otherwise be idle. The paper shows that such a fast lane is always Pareto improving under Nash equilibrium in arrival times at the bottleneck and inelastic demand. It can replicate the arrival schedule and queueing outcomes of a toll that optimally charges a constant toll during part of the demand peak. Within some bounds, the fast lane scheme is still welfare improving when demand is elastic.
    Keywords: Congestion; Tolling; Bottleneck; Scheduling; Fast lane
    JEL: R41
    Date: 2011
  8. By: Arie ten Cate
    Abstract: <p>The coming energy transition in residential neighbourhoods in the Netherlands is the result of the increasing cost of CO2 emission and the decreasing costs of solar PhotoVoltaics (PV) and alternative techniques of residential heating, namely Combined Heat and Power (CHP) and heat pump. </p><p>The optimal transition is found by minimizing the total discounted social costs of residential energy consumption and generation. Social costs include the cost of CO2 emission and the investment in the electric network. The model integrates economics and the electric constraints based on the Alternating Current (AC) network power flow.</p><p>The results indicate that in the optimal transition nearly all houses are going to use an air-to-water heat pump with auxiliary gas heating. This shift from gas to electricity depends very little on the future CO2 price or the network costs. Solar PV is not yet socially profitable at this moment.</p><p>The "business case" for a household, using private costs, includes taxes and excludes CO2 costs and uses a higher discount rate. In the resulting optimum no heat pumps are used. However, reducing the ratio of the electricity tax versus the gas tax moves the private optimum to the social optimum.</p><p>In order to use the model (with GAMS) or to verify table 18 (with Octave/Matlab), download the packed file below (If needed: rename it from .txt  to .zip and unpack the file)</p>
    JEL: C61 Q42 Q48 Q58
    Date: 2012–11

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