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on Regulation |
| By: | Arthur Schram (schram@uva.nl); Aljaz Ule (a.ule@uva.nl) |
| Abstract: | This paper investigates infrastructure investment in markets where regulation is subject to varying degrees of manipulation by elected politicians. Based on a model of price regulation in a market with increasing demand and long-term returns on investment we construct a multi-period game between a service provider, consumers with voting rights and elected decision makers. In each period the consumers elect a decision maker who may then regulate the price for service provision. Before an election the service provider chooses whether to increase its capacity. Investment is irreversible and profitable only with a sufficiently high price. We derive the subgame perfect equilibrium for this game and investigate the price and investment dynamics through an experiment with human subjects. The experimental results show that service providers invest when decision-makers' interests align with their own, though prices may rise inefficiently high when the regulatory framework is made independent of future political manipulation. Independency of regulation thus decreases efficiency and consumer surplus. In contrast, when decision-makers' interests do not align with service providers' we find efficiency only when regulation can be made independent from electoral dynamics. |
| Keywords: | Infrastructural investment; regulation; electoral competition; laboratory experiment |
| JEL: | L5 L43 D92 C9 |
| Date: | 2013–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20130046&r=reg |
| By: | Gurkan, G.; Langestraat, R. (Tilburg University, Center for Economic Research) |
| Abstract: | Keywords: investment modeling in electricity markets, energy policy, renewable energy obligations, green certificates, technology bandings, perfect competition equilibrium |
| JEL: | C61 C63 H23 Q58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2013016&r=reg |
| By: | Kathy Baylis; Don Fullerton; Daniel H. Karney |
| Abstract: | We extend the model of Fullerton, Karney, and Baylis (2012 working paper) to explore cost-effectiveness of unilateral climate policy in the presence of leakage. We ignore the welfare gain from reducing greenhouse gas emissions and focus on the welfare cost of the emissions tax or permit scheme. Whereas that prior paper solves for changes in emissions quantities and finds that leakage may be negative, we show here that all cases with negative leakage in that model are cases where a unilateral carbon tax results in a welfare loss. With positive leakage, however, a unilateral policy can improve welfare. |
| JEL: | Q27 Q28 Q56 Q58 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18898&r=reg |
| By: | Ibon Galarraga; Josu Lucas |
| Abstract: | This paper estimates the economic value that consumers place on energy efficiency (EE) labels for appliances in the Spanish market. <br /> It uses the hedonic method to calculate the price premium paid in the market for that attribute isolated from others. Furthermore, the Quantity Based Demand System (QBDS) is applied to calculate the own and cross price elasticities of demand for both EE appliances and others. <br /> These elasticities are useful for improving the design of policies to promote EE. The paper looks at three different appliances marketed in Spain during 2012: washing machines, fridges and dishwashers. |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:bcc:wpaper:2013-08&r=reg |
| By: | Charles A. Holt (University of Virginia); William M. Shobe (University of Virginia) |
| Abstract: | The state of California has implemented an economy-wide program to regulate its greenhouse gas emissions. A significant share of the emission reductions will be obtained via a cap and trade program with a mix of auctioning and free allocation of allowances. This program has a number of novel design features including, among other things, a price containment reserve, a limit on ownership of allowances, and the forced consignment to auction of some of the share of freely allocated allowances. We use a series of laboratory experiments to test the influence of two of these design features on the performance of the emissions market. We test the effect of holding limits and of the new three-tier price containment sale mechanism. We find that tight holding limits used to prevent market dominance reduce liquidity and appear to harm market efficiency and price discovery. The price containment sale mechanism reduces price spikes during periods of high allowance demand and has different effects on market performance than releasing the price containment reserve as part of the auction of allowances. We discuss the implications for the design of price containment reserves. |
| Keywords: | Emission markets; experiments; cap and trade; greenhouse gas emissions; market design |
| Date: | 2013–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:vac:report:rpt13-01&r=reg |
| By: | Gurkan, G.; Langestraat, R.; Ozdemir, O. (Tilburg University, Center for Economic Research) |
| Abstract: | Abstract Introducing a ceiling on total carbon dioxide (CO2) emissions and allowing polluting industries to buy and sell permits to meet it (known as a cap-and-trade system) affects investment strategies, generation quantities, and prices in electricity markets. In this paper we analyze these effects under the assumption of perfect competition and make a comparison with another potential way of reducing CO2 emissions, namely a fixed carbon tax charged per unit emission. We deal with an energy only market and model it as a two-stage game where capacities are installed in the first stage and production takes place in the future spot market. For a stylized version of this model (with no network effects and deterministic demand), we show that at the equilibrium either one or a mixture of two technologies is used. Such a mixture consists of a relatively clean and a relatively dirty technology. In the absence of a ceiling on total emissions, marginal operating costs of different technologies form a fixed merit order; that is, the marginal costs are ordered in an ascending fashion. Based on the observed demand, this fixed merit order is used to determine the total number of technologies used so that all demand is satisfied. We show that, as long as there is enough capacity in the system, when a fixed maximum allowance level is introduced, different demand levels impose different prices for a unit of emission allowance, and consequently there is no fixed merit order on the technologies. Therefore, for different levels of observed demand one can find a different optimal mixture. We develop an algorithm for finding the induced optimal mixture in a systematic way. We show that the price of electricity and the price of allowances increase as the maximum allowance level decreases. When, in comparison, a fixed tax is charged for the emissions, the merit order is fixed for all demand levels and the first technology in the merit order is the only generating unit. By means of a numerical study, we consider a more general version of the model with stochastic demand and observe that a broader mixture of technologies is used to satisfy the uncertain demand. We show that if there is a shortage of transmission capacity in the system, only introducing financial incentives and instruments (such as taxation or a cap-and-trade system) neither is sufficient to curb CO2 levels nor 1 necessarily induces investment in cleaner technologies. |
| Keywords: | investment modeling in electricity markets;energy policy;carbon tax;emission allowances;perfect competition equilibrium |
| JEL: | C61 C63 H23 Q58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2013015&r=reg |
| By: | Szalay, Dezsö |
| Abstract: | I study the optimal regulation of a firm producing two goods. The firm has private information about its cost of producing either of the goods. I explore the ways in which the optimal allocation differs from its one dimensional counterpart. With binding constraints in both dimensions, the allocation involves distortions for the most efficient producers and features overproduction for some less efficient types. |
| JEL: | D82 L21 |
| Date: | 2013–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:397&r=reg |
| By: | Keith Marzilli Ericson; Judd B. Kessler |
| Abstract: | We examine how the articulation of government policy affects behavior. Our experiment compares a government mandate to purchase health insurance to a financially equivalent tax on the uninsured. Participants report their probability of purchasing health insurance under one of the two articulations of the policy. The experiment was conducted in four waves, from December 2011 to November 2012. We document the controversy over the Affordable Care Act’s insurance mandate provision that changed the political discourse during the year. Pre-controversy, articulating the policy as a mandate, rather than a financially equivalent tax, increased probability of insurance purchase by 10.6 percentage points — an effect comparable to a $1000 decrease in annual premiums. After the controversy, the mandate is no more effective than the tax. Our results show that how a policy is articulated affects behavior and that persuasion and public opinion management can help achieve policy objectives at lower cost. |
| JEL: | D02 D03 D04 H2 H3 K42 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18913&r=reg |
| By: | Juan Moreno Cruz; M. Scott Taylor |
| Abstract: | We develop a spatial model of energy exploitation where energy sources are differentiated by their geographic location and energy density. The spatial setting creates a scaling law that magnifies the importance of differences across energy sources. As a result, renewable sources twice as dense, provide eight times the supply; and all new non-renewable resource plays must first boom and then bust. For both renewable and non-renewable energy sources we link the size of exploitation zones and energy supplies to energy density, and provide empirical measures of key model attributes using data on solar, wind, biomass, and fossil fuel energy sources. Non-renewable sources are four or five orders of magnitude more dense than renewables, implying that the most salient feature of the last 200 years of energy history is the dramatic rise in the use of energy dense fuels. |
| JEL: | Q0 Q4 R0 R12 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18908&r=reg |