nep-reg New Economics Papers
on Regulation
Issue of 2013‒01‒26
twelve papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Environmental Policies, Product Market Regulation and Innovation in Renewable Energy By Lionel Nesta; Francesco Vona; Francesco Nicolli
  2. Regulation of Road Accident Externalities when Insurance Companies have Market Power By Maria Dementyeva; Paul R. Koster; Erik T. Verhoef
  3. Unobserved heterogeneous effects in the cost efficiency analysis of electricity distribution systems By Per J. Agrell; Mehdi Farsi; Massimo Filippini; Martin Koller
  4. Redistribution Effects of Energy and Climate Policy: The Electricity Market By Lion Hirth; Falko Ueckerdt
  5. Can Uncertainty Justify Overlapping Policy Instruments to Mitigate Emissions? By Oskar Lecuyer; Philippe Quirion
  6. Ex-ante margin squeeze tests in the telecommunications industry: What is a reasonable efficient operator? (Revised: December 20, 2012) By Gaudiny, Germain; Saavedra Valenzuela, Claudia
  7. Reputation and Entry By Jeffrey V. Butler; Enrica Carbone; Pierluigi Conzo; Giancarlo Spagnolo
  8. Energy-efficiency and environmental policies & income supplements in the UK: Their evolution and distributional impact in relation to domestic energy bills By Chawla, M.; Pollitt, M.G.
  9. Water nationalization and service quality By Borraz, Fernando; Pampillon, Nicolas Gonzalez; Olarreaga, Marcelo
  10. ETS and Technological Innovation: A Random Matching Model By Angelo Antoci; Simone Borghesi; Mauro Sodini
  11. Long Run Demand for Energy Services: the Role of Economic and Technological Development By Roger Fouquet
  12. Assesing the Impact of Competition on the Efficiency of Italian Airports By Tiziana D’Alfonso; Cinzia Daraio; Alberto Nastasi

  1. By: Lionel Nesta (SciencesPo, OFCE-DRIC); Francesco Vona (SciencesPo, OFCE-DRIC); Francesco Nicolli (University of Ferrara)
    Abstract: We investigate the effectiveness of policies in favor of innovation in renewable energy under different levels of competition. Using information regarding renewable energy policies, product market regulation and high-quality green patents for OECD countries since the late 1970s, we develop a pre-sample mean count-data econometric specification that also accounts for the endogeneity of policies. We find that renewable energy policies are significantly more effective in fostering green innovation in countries with deregulated energy markets. We also find that public support for renewable energy is crucial only in the generation of high-quality green patents, whereas competition enhances the generation of green patents irrespective of their quality.
    Keywords: Renewable Energy Technology, Patents, Environmental Policies, Product Market Regulation, Policy Complementarity
    JEL: Q55 Q58 Q42 Q48 O34
    Date: 2012–11
  2. By: Maria Dementyeva (VU University Amsterdam); Paul R. Koster (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam)
    Abstract: Accident externalities are among the most important external costs of road transport. We study the regulation of these when insurance companies have market power. Using analytical models, we compare a public-welfare maximizing monopoly with a private profit-maximizing monopoly, and markets where two or more firms compete. A central mechanism in the analysis is the accident externality that individual drivers impose on one another via their presence on the road. Insurance companies will internalize some of these externalities, depending on their degree of market power. We derive optimal insurance premiums, and "manipulable" taxes that take into account the response of the firm to the tax rule applied by the government. Furthermore, we study the taxation of road users under different assumptions on the market structure. We illustrate our analytical results with numerical examples, in order to better understand the determinants of the relative performance of different market structures.
    Keywords: accident externalities; traffic regulation; safety; second-best; market power
    JEL: D43 D62 R41 R48
    Date: 2013–01–18
  3. By: Per J. Agrell (Université Catholique de Louvain and Louvain School of Management); Mehdi Farsi (University of Neuchâtel); Massimo Filippini (ETH Zurich, Switzerland); Martin Koller (ETH Zurich, Switzerland)
    Abstract: The purpose of this study is to analyze the cost efficiency of electricity distribution systems in order to enable regulatory authorities to establish price- or revenue cap regulation regimes. The increasing use of efficiency analysis in the last decades has raised serious concerns among regulators and companies regarding the reliability of efficiency estimates. One important dimension affecting the reliability is the presence of unobserved factors. Since these factors are treated differently in various models, the resulting estimates can vary across methods. Therefore, we decompose the benchmarking process into two steps. In the first step, we identify classes of similar companies with comparable network and structural characteristics using a latent class cost model. We obtain cost best practice within each class in the second step, based on deterministic and stochastic cost frontier models. The results of this analysis show that the decomposition of the benchmarking process into two steps has reduced unobserved heterogeneity within classes and, hence, reduced the unexplained variance previously claimed as inefficiency.
    Keywords: Efficiency analysis; cost function; electricity sector; incentive regulation
    JEL: L92 L50 L25
    Date: 2013–01
  4. By: Lion Hirth (Potsdam-Institute for Climate Impact Research, Vattenfall GmbH); Falko Ueckerdt (Potsdam-Institute for Climate Impact Research)
    Abstract: Energy and climate policies are usually seen as measures to internalize externalities. However, as a side effect, these policies redistribute wealth between consumers and producers, and within these groups. While redistribution is seldom the focus of the academic literature in energy economics, it plays a central role in real world policy debates. This paper compares the redistribution effects of two major electricity policies: support schemes for renewable energy sources, and CO2 pricing. We find that the redistribution effects of both policies are large, and they work in opposed directions: while renewables support transfers wealth from producers to consumers, carbon pricing does the opposite. More specifically, we show that moderate amounts of wind subsidies leave consumers better off even if they bear the costs of subsidies. In the case of CO2 pricing, we find that while suppliers as a whole benefit even without free allocation of emission certificates, large amounts of producer surplus are redistributed between different types of producers. These findings are derived from an analytical model of electricity markets, and a calibrated numerical model of the Northwestern European integrated power system. Our findings imply that a society with a preference for avoiding large redistribution might prefer a mix of policies, even if CO2 pricing alone is the first best climate policy in terms of allocative efficiency.
    Keywords: Carbon Tax, Emission Trading, Redistribution, Consumer Surplus, Producer Surplus, Wind Power Generation, Electricity Market Modelling
    JEL: Q42 Q48 L94 H23 D61 D62 C61 C63
    Date: 2012–11
  5. By: Oskar Lecuyer (CNRS, UMR 8568 CIRED, Nogent-sur-Marne and EDF R&D, Clamart); Philippe Quirion (CNRS, UMR 8568 CIRED, Nogent-sur-Marne, France)
    Abstract: This article constitutes a new contribution to the analysis of overlapping instruments to cover the same emission sources. Using both an analytical and a numerical model, we show that when the risk that the CO2 price drops to zero and the political unavailability of a CO2 tax (at least in the European Union) are taken into account, it can be socially optimal to implement an additional instrument encouraging the reduction of emissions, for instance a renewable energy subsidy. Our analysis has both a practical and a theoretical purpose. It aims at giving economic insight to policymakers in a context of increased uncertainty concerning the future stringency of the European Emission Trading Scheme. It also gives another rationale for the use of several instruments to cover the same emission sources, and shows the importance of accounting for corner solutions in the definition of the optimal policy mix.
    Keywords: Uncertainty, Policy Overlapping, Mitigation Policy, Energy policy, EU-ETS, Renewable Energy, Corner Solutions, Nil CO2 Price
    JEL: Q28 Q41 Q48 Q58
    Date: 2012–12
  6. By: Gaudiny, Germain; Saavedra Valenzuela, Claudia
    Abstract: We study the implementation of reasonably efficient operator margin squeeze tests by National Regulatory Authorities in European telecommunications markets. We provide a theoretical framework in which we show how regulatory authorities deal with the asymmetries between the entrants and the incumbent by adjusting the equally efficient operator margin squeeze test used in competition policy. Using this framework, we build a benchmark of implementation choices by inspecting authorities' guidelines, market analyses and decisions. We find that some implementation choices are very similar across the authorities' decisions, whereas some others are dealt with quite heterogeneously. --
    Keywords: Margin squeeze,Imputation test,Regulation,Telecommunications
    JEL: L51 L96
    Date: 2012
  7. By: Jeffrey V. Butler; Enrica Carbone; Pierluigi Conzo; Giancarlo Spagnolo
    Abstract: This paper reports results from a laboratory experiment exploring the relationship between reputation and entry in procurement. We propose a procurement model with reputation and entry assigning to the entrant a reputational advantage of varying size across treatments. There is widespread concern among regulators that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new (smaller or foreign) firms in public procurement markets. Our results suggest that while some reputational mechanisms indeed reduce the frequency of entry, appropriately designed reputation mechanisms actually stimulate it. Since quality increases but not prices, our data also suggest that the introduction of reputation may generate large welfare gains for the buyer.
    Keywords: Entry, Feedback mechanisms, Governance, Incomplete contracts, Limited enforcement, Incumbency, Multidimensional competition, Participation, Past performance, Procurement, Quality, Reputation, Vendor rating.
    JEL: H57 L14 L15
    Date: 2012–12
  8. By: Chawla, M.; Pollitt, M.G.
    Abstract: The paper examines the financial costs of energy-efficiency and environmental policies that directly affect domestic electricity and gas bills in the UK over time. It also attempts for the first time to work out the current distributional impacts of these policies and others that act as income supplements thereby presenting a consistent picture across time and income deciles. Figures suggest that during 2000-11, the percentage share of policy costs in typical domestic electricity and gas bills rose by 14% and 4%, respectively. This reflects a growing share of policy costs in bills which is relatively small for gas customers but significant for electricity customers. Moreover, distributional impacts of the energy-policy mix highlight the issue of imperfect targeting of low-income households during 2009-10. The study also indicates that during 2010-11, 76% of the funds for energy-efficiency schemes were handled by the private sector. Given that a long-term solution to fuel poverty lies in improving thermal efficiency of houses; this research draws attention towards the need for definitive evidence on the ways in which energy suppliers charge policy costs from their domestic customers. This would facilitate in making the future policies more empirically grounded. In time, a clearer understanding of official statistics on energy bills will go a long way in restoring consumers’ trust in the pricing mechanism of the energy market.
    Keywords: Energy-efficiency and environmental policy; income supplements; distributional impact; policy costs; targeting
    JEL: Q48
    Date: 2012–12–19
  9. By: Borraz, Fernando; Pampillon, Nicolas Gonzalez; Olarreaga, Marcelo
    Abstract: The objective of this paper is to explore the impact of Uruguay's privatization and subsequent nationalization of water services on network access and water quality. The results suggest that although the early privatization of water services had little impact on access to the sanitation network, the subsequent nationalization led to an increase in network access at the bottom of the income distribution as well as an improvement in water quality.
    Keywords: Town Water Supply and Sanitation,Water Supply and Sanitation Governance and Institutions,Water and Industry,Water Conservation,Infrastructure Regulation
    Date: 2013–01–01
  10. By: Angelo Antoci (University of Sassari); Simone Borghesi (University of Siena); Mauro Sodini (University of Pisa)
    Abstract: The present paper investigates the functioning of an Emission Trading System (ETS) and its impact on the diffusion of environmental-friendly technological innovation in the presence of firms’ strategic behaviours and sanctions to non-compliant firms. For this purpose, we study an evolutionary game model with random matching, namely, a context in which a population of firms interact through pairwise random matchings. We assume that each firm has to decide whether to adopt a new clean technology or keep on using the old technology that requires pollution permits to operate and that the strategy whose expected payoff is greater than the average payoff spreads within the population at the expense of the alternative strategy (the so-called replicator dynamics). We investigate the technological dynamics and the stationary states that emerge from the model. From the analysis of the model, we show that by properly modifying the penalty on non-compliant firms, it is possible to shift from one dynamic regime to another and that an increase in permits trade can promote the diffusion of innovative pollution-free technologies.
    Keywords: Emissions Trading, Technological Innovation, Random Matching, Evolutionary Game, Penalty System, Strategic Behaviour
    JEL: C62 C63 C73 C78 O33 Q55 Q58
    Date: 2012–10
  11. By: Roger Fouquet
    Abstract: This paper investigates how the demand for energy services has changed since the Industrial Revolution. It presents evidence on the income and price elasticities of demand for domestic heating, passenger transport and lighting in the United Kingdom over the last two hundred years. It finds that the general trend in income elasticity followed an inverse U-shape curve and in price elasticity was a U-shape curve, as the economy developed and energy service prices fell. However, these general trends were disrupted by energy and technological transitions, which boosted demand (either by encouraging poorer consumers to fully enter the market or by offering new attributes of value to wealthier consumers). This evidence suggests that energy service consumption in developing economies is likely to continue rising rapidly and in industrialised countries is not likely to decline. Thus, in the absence of a full transition to low carbon energy sources and technologies, this implies long run increases in global carbon dioxide emissions.
    Keywords: Long Run Demand, Elasticities. Economic Development
    Date: 2013–01
  12. By: Tiziana D’Alfonso (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Cinzia Daraio (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza"); Alberto Nastasi (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza")
    Abstract: This paper provides new empirical evidence on the efficiency of Italian airports. Analysing data on 2010 trough conditional e?ciency measures, we find that competition affects mostly the frontier of best performers, whilst airports that are lagging behind are less influenced by it. By applying a novel two stage approach, we show that competition has an inverse U-shape impact. Finally, the bi-modal shape of the distribution of pure efficiency indicates the existence of two differently managed groups of airports.
    Keywords: Italian airports; competition; DEA; conditional efficiency; two stage analysis
    Date: 2013–01

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