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on Regulation |
| By: | Bruno Lanz (ETH Zurich, Switzerland); Sebastian Rausch (ETH Zurich, Switzerland) |
| Abstract: | Firms subject to cost-of-service regulation cannot withhold windfall profits associated with free emissions allowances. This paper examines the efficiency and distributional impacts of two approaches to transfer free allowances to consumers: output subsidies and lump-sum payments. We employ an empirically calibrated model of the U.S. economy that features regulated monopolies in the electricity sector and many heterogeneous households. Under a carbon dioxide cap-and-trade policy, we find that using free allowances to subsidize regulated electricity prices increases aggregate welfare costs by 40-80 percent relative to lump-sum transfers. These inefficiencies are disproportionately borne by households in the tails of the income distribution. |
| Keywords: | Climate policy; Cap-and-trade; Allowance allocation; Cost-of-service regulation; Electricity Generation. |
| JEL: | C61 C68 D58 Q43 Q54 |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:13-178&r=reg |
| By: | Heuson, Clemens |
| Abstract: | Recent work has shown that Weitzman's policy rule for choosing price- versus quantity-based pollution control instruments under uncertainty is biased when the polluting firms possess market power (Heuson 2010). However, this study is restricted to emission standards and taxes, while tradable emission permits are ruled out since market power gives rise to strategic permit trading, which requires some separate effort in investigation. This paper aims at closing this gap and, in doing so, makes three main contributions. First, it provides the first-time full comparative analysis of the three most common pollution control instruments stated above which takes into account two features that are frequently given in actual regulation settings, namely market power of polluting firms and uncertain abatement costs from the regulator's perspective. Second, the paper reveals a new form of strategic permit trading that may arise even though the permit market is perfectly competitive. Finally, the rather pessimistic view concerning the impact of market power on the comparative advantage of tradable emission permits, which dominates in the literature so far, is put into context. -- |
| Keywords: | external diseconomies of pollution,emission standards,tradable emission permits,emission taxes,uncertainty,Cournot competition,market power,strategic behaviour |
| JEL: | D89 L13 Q58 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ufzdps:62013&r=reg |
| By: | Crawford, Gregory S |
| Abstract: | The market for multi-channel video programming has undergone considerable change in the last 15 years. Direct-Broadcast Satellite service, spurred by 1999 legislation that leveled the playing field with cable television systems, has grown from 3% to 33% of the U.S. MVPD (cable, satellite, and telco video) market. Telephone operators have entered in some parts of the US and online video distributors are a growing source of television viewing. This chapter considers the merits of cable television regulation in light of these developments. It surveys the dismal empirical record on the effects of price regulation in cable and the more encouraging but incomplete evidence on the benefits of satellite and telco competition. It concludes with a consideration of four open issues in cable markets: horizontal concentration and vertical integration in the programming market, bundling by both cable systems and programmers, online video distribution, and temporary programming blackouts from failed carriage negotiations for both broadcast and cable programming. While the distribution market is clearly now more competitive, concerns in each of these areas remain. |
| Keywords: | bundling; cable television; competition; foreclosure; internet; pay television; regulation; satellite television |
| JEL: | L41 L42 L43 L50 |
| Date: | 2013–01 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9316&r=reg |
| By: | Lalive, Rafael; Luechinger, Simon; Schmutzler, Armin |
| Abstract: | Many governments subsidize regional rail service as an alternative to road traffic. This paper assesses whether increases in service frequency reduce road traffic externalities. We exploit differences in service frequency growth by procurement mode following a railway reform in Germany to address endogeneity of service growth. Increases in service frequency reduce the number of severe road traffic accidents, carbon monoxide, nitrogen monoxide, nitrogen dioxide pollution and infant mortality. Placebo regressions with sulfur dioxide and ozone yield no effect. Service frequency growth between 1994 and 2004 improves environmental quality by an amount that is worth approximately 28-40 % of total subsidies. An analysis of household behavior shows that the effects of railway services on outcome variables are driven by substitution from road to rail. |
| Keywords: | Pollution; Public Transport; Railways; Road Accidents |
| JEL: | Q53 R41 R48 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9335&r=reg |
| By: | Corina Haita |
| Abstract: | This paper contributes to the literature in market power for emissions permits, modeling an emissions trading scheme in which polluters differ only in their business-as-usual emissions. They play a two-stage static complete information game in which their market power arises endogenously from the business-as-usual emissions. In the first stage the polluters bid in an auction for the distribution of the fixed supply of permits and in the second stage they trade these permits in a secondary market. For compliance, they can also engage in abatement activity at a quadratic cost. In equilibrium all polluters are successful in the auction. In the secondary market the low emitters are net sellers and the high emitters are net buyers. Moreover, the secondary market price is unambiguously above the auction clearing price. The welfare analysis shows that the aggregate compliance cost when polluters act strategically increases in the heterogeneity of their business-as-usual emissions. Furthermore, there exists a threshold of the fixed supply of permits above which strategic behavior is socially preferable. Finally, for certain distributions of the business-as-usual emissions, strategic behavior is cost-effective, regardless of the level of the available supply of permits. |
| Date: | 2013–03–18 |
| URL: | http://d.repec.org/n?u=RePEc:ceu:econwp:2013_3&r=reg |
| By: | Ana P. Borges (NIDISAG - Núcleo de Investigação do Instituto Superior de Administração e Gestão); Didier Laussel (Aix-Marseille Université (AMSE)); João Correia-da-Silva (CEF.UP e Faculdade de Economia, Universidade do Porto) |
| Abstract: | We study optimal regulation of a monopolist when intrinsic efficiency (intrinsic cost) and empire-building tendency (marginal utility of output) are private information but actual cost (difference between intrinsic cost and effort level) is observable. This is a problem of multidimensional screening with complementary activities. Results are mainly driven by two elements: the correlations between types; and the relative magnitude of the uncertainty along the two dimensions of private information. If the marginal utility of output varies much more (resp. less) across managers than the intrinsic marginal cost, then we have empire-building (resp. efficiency) dominance. In that case, an inefficient empire-builder produces more (resp. less) and at lower (resp. higher) marginal cost than an efficient money-seeker. It is only when variabilities are similar that we obtain the natural ranking of activities (empire-builders produce more while efficient managers produce at a lower cost). |
| Keywords: | Multidimensional screening, regulation, procurement, empire-building, adverse selection. |
| JEL: | D82 H42 L51 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:486&r=reg |
| By: | Panos Pashardes; Nicoletta Pashourtidou; Theodoros Zachariadis |
| Abstract: | The European Union's energy and climate policy package will cause an increase in end-user prices of electricity and fuels. This paper assesses the distributional effects of these price increases in Cyprus by specifying and estimating a household energy demand system with price heterogeneity between households. This novel method allows obtaining robust parameter estimates even when household expenditure surveys are limited. The empirical analysis is conducted both conditional on energy-related household characteristics and unconditionally. We then use the estimated demand system to conduct welfare analysis. We find that the rise in energy prices results in welfare losses (in 2009 prices) of EUR 31 and EUR 101 per household for 2013 and 2020 respectively, or a nationwide welfare loss of more than EUR’2009 33 million in 2020. Price increases will be regressive and will affect small and urban households more strongly than the rest of the population. Furthermore, we find that the largest proportion of welfare loss is due to loss of household’s income purchasing power caused by higher energy prices, while the changes in relative prices induce deadweight loss which is a small part of welfare loss because of the limited substitutability of energy with other goods. |
| Keywords: | deadweight loss, demand system, distributional effect |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:07-2013&r=reg |
| By: | Nieswand, Maria; Walter, Matthias |
| Abstract: | This paper examines the impact of endogenous deficit-balancing subsidies on the cost efficiency of local public bus companies by using alternative frontier cost models for panel data. Thereby, the multidimensional performance estimation incorporates the subsidy variable directly. The empirical analysis relies on a unique dataset of 33 German companies observed over a period of up to twelve years. We find a positive effect of endogenous subsidies on the standard deviation of cost inefficiency implying that the range of companies’ cost inefficiency increases with the level of subsidies relative to total costs. Further, we find that non-subsidized firms perform better. |
| Keywords: | cost efficiency; endogenous subsidies; heteroscedasticity; local public bus transportation; panel data; stochastic cost frontier |
| JEL: | C13 D24 L92 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9346&r=reg |
| By: | Bourreau, Marc; Cambini, Carlo; Hoernig, Steffen |
| Abstract: | Often, fixed-line incumbents also own the largest mobile network. We consider the effect of this joint ownership on market outcomes. Our model predicts that while fixed-to-mobile call prices to the integrated mobile network are more efficient than under separation, those to rival mobile networks are distorted upwards, amplifying any incumbency advantage. As concerns potential remedies, a uniform off-net pricing constraint leads to higher welfare than functional separation and even allows to maintain some of the efficiency gains. |
| Keywords: | Call externality; Integration; Network competition; On/off-net pricing |
| JEL: | L51 L92 |
| Date: | 2013–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9361&r=reg |
| By: | Bourreau, Marc; Cambini, Carlo; Hoernig, Steffen |
| Abstract: | We investigate cooperative investment for the deployment of a new infrastructure, and how it interacts with access obligations and demand uncertainty. Co-investment increases total coverage only if service differentiation and/or cost savings from joint investment, in particular due to high uncertainty, are high. Mandated access reduces incentives for co-investment not only through lower returns but also by the existence of the access option itself. Voluntary access provision increases infrastructure coverage but reduces social welfare by softening competition. |
| Keywords: | Access Obligations; Co-investment; Networks; Uncertainty |
| JEL: | D21 D43 G31 L5 L96 |
| Date: | 2013–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9376&r=reg |
| By: | Wim BENOOT; Jan BRUECKNER; Stefan PROOST |
| Abstract: | This paper analyzes strategic interaction between intercontinental airports, each of which levies airport charges paid by airlines and chooses its own capacity under conditions of congestion. Congestion from intercontinental flights is common across the airports since departure and arrival airports are linked one to one, while purely domestic traffic also uses each airport. The paper focuses on five questions. First, if both continents can strategically set separate airport charges for domestic and intercontinental flights, how will the outcome differ from the first-best solution? Second, how is the impact of strategic airport behavior affected by the extent of market power of the airlines serving the intercontinental market? Third, what happens if one continent has several competing intercontinental airports, each with its own regulator, while the other has a single airport and regulator? Fourth, how effective is a non-discrimination clause for airport charges, which prevents independent strategic use of the intercontinental charge? Fifth, what is the effect of higher airport operating costs on one continent (a result of security or immigration procedures) on the strategic outcome? The questions are addressed with an algebraic model and results are illustrated numerically. |
| Date: | 2012–03 |
| URL: | http://d.repec.org/n?u=RePEc:ete:ceswps:ces12.03&r=reg |