nep-reg New Economics Papers
on Regulation
Issue of 2013‒05‒05
nine papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Directing Technical Change from Fossil-Fuel to Renewable Energy Innovation: An Empirical Application Using Firm-Level Patent Data By Joëlle Noailly; Roger Smeets
  2. Investment under uncertainty and regulation of new access networks By Inderst, Roman; Peitz, Martin
  3. A game theoretical analysis of the design options of the real-time electricity market By Haikel Khalfallah; Vincent Rious
  4. The Choice of Innovation Policy Instruments By Borrás, Susana; Edquist, Charles
  5. Differential Pricing When Costs Differ: A Welfare Analysis By Yongmin Chen and Marius Schwartz
  6. Does One Design Fit All? On The Transferability Of The PJM Market Design To The German Electricity Market By Katrin Schmitz; Christoph Weber
  7. Heterogeneous Beliefs, Regret, and Uncertainty: The Role of Speculation in Energy Price Dynamics By Marc Joëts
  8. Estimating Crowding Costs in Public Transport By Luke Haywood; Martin Koning
  9. How market-based water allocation can improve water use efficiency in the Aral Sea basin? By Bekchanov, Maksud; Bhaduri, Anik; Ringler, Claudia

  1. By: Joëlle Noailly (CIES, Graduate Institute of International and Development Studies, Geneva, Switzerland and CPB Netherlands Bureau for Economic Policy Analysis, The Hague, The Netherlands); Roger Smeets (Rutgers Business School, Newark, USA)
    Abstract: This paper investigates the determinants of directed technical change in the electricity generation sector. We use firm-level data on patents led in renewable (REN) and fossil fuel (FF) technologies by about 7,000 European firms over the period 1978-2006. We separately study specialized firms that innovate in only one type of technology during the sample period, and mixed firms that innovate in both technologies. We find that for specialized firms the main drivers of innovation are fossil-fuel prices, market size, and firms' past knowledge stocks. Also, prices and market size drive the entry of new REN firms into innovation. By contrast, we find that innovation by mixed firms is mainly driven by strong path-dependencies since for these firms past knowledge stock is the major driver of the direction of innovation. These results imply that generic environmental policies that affect prices and energy demand are mainly effective in directing innovation by small specialized firms. In order to direct innovation e orts of large mixed corporations with a long history of FF innovation, targeted R&D policies are likely to be more effective.
    Keywords: Directed Technical Change, Energy, Patents, Firms' Dynamics
    JEL: Q4
    Date: 2013–04
  2. By: Inderst, Roman; Peitz, Martin
    Abstract: Contractual and regulatory provisions for access affect incentives to invest in an upgraded network and, in particular, a next-generation access network. Investment decisions are made under uncertainty and have to be made over time. This papers provides a framework for taking uncertainty, risk aversion, and the timing of investment explicitly into account. First, it evaluates various access price policies in a framework in which the incremental value over the legacy network is uncertain. Second, introducing risk aversion, the access price structure turns out to be critical for the risk profile of the investing telecom operator and of the access-seeking alternative operator. Third, some implications of the time structure of access payments are derived. --
    Keywords: NGA,investment under uncertainty,access price rule,telecommunications
    JEL: L1 L5
    Date: 2013
  3. By: Haikel Khalfallah (PACTE - Politiques publiques, ACtion politique, TErritoires - Institut d'Études Politiques [IEP] - Grenoble - CNRS : UMR5194 - Université Pierre Mendès-France - Grenoble II - Université Joseph Fourier - Grenoble I); Vincent Rious (Microeconomix - Microeconomix)
    Abstract: In this paper we study the economic consequences of two real-time electricity market designs (with or without penalties) taking into account the opportunistic behaviors of market players. We implement a two-stage dynamic model to consider the interaction between the forward market and the real-time market where market players compete in a Nash manner and rely on supply/demand function oligopoly competition. Dynamic programming is used to deal with the stochastic environment of the market and the mixed complementarity problem is employed to find a solution to the game. Numerical examples are presented to illustrate how the optimal competitor's strategies could change according to the adoption or no adoption of a balancing mechanism and to the level of the penalty imposed on imbalances, regarding a variety of producers' cost structures. The main finding of this study is that implementing balancing mechanisms would increase forward contracts while raising electricity prices. Moreover, possible use of market power would not be reduced when imbalances are penalized.
    Keywords: Electricity markets ; balancing mechanisms ; supply function equilibrium ; mixed complementarity problem
    Date: 2013–01
  4. By: Borrás, Susana (Department of Business and Politics, Copenhagen Business School, Denmark CIRCLE, Lund University, Sweden); Edquist, Charles (CIRCLE, Lund University)
    Abstract: The purpose of this article is to discuss the different types of instruments of innovation policy, to examine how governments and public agencies in different countries and different times have used these instruments differently, to explore the political nature of instrument choice and design (and associated issues), and to elaborate a set of criteria for the selection and design of the instruments in relation to the formulation of innovation policy. The article argues that innovation policy instruments must be designed and combined into mixes in ways that address the problems of the innovation system. These mixes are often called “policy mix”. The problem-oriented nature of the design of instrument mixes is what makes innovation policy instruments ‘systemic’
    Keywords: Policy mix; innovation system; innovation policy instruments; governance; regulation; public policy
    JEL: O30 O31 O32 O33 O38
    Date: 2013–02–15
  5. By: Yongmin Chen and Marius Schwartz (Department of Economics, Georgetown University)
    Abstract: This paper analyzes the welfare effects of monopoly differential pricing in the important but largely neglected case where marginal costs of service differ across consumer groups. Compared to uniform pricing, cost-based differential pricing generally raises total welfare. Although total output may fall or even its allocation across consumer groups may worsen, under a minor demand curvature condition at least one of these changes must be beneficial and dominate if the other is not. Aggregate consumer welfare also rises (under a mildly tighter condition). The source of consumer gains is not cost savings from output reallocation, which flow to the firm. Rather, to induce output reallocation the firm must vary its prices, thereby creating price dispersion without an upward bias in the average price. This improves consumer welfare even in cases where output falls. We contrast these results with those in the extensive literature on third-degree price discrimination and, furthermore, provide sufficient conditions for beneficial differential pricing when both demand elasticities and costs differ.
    Keywords: differential pricing, price discrimination, demand curvature, pass-through rate JEL Codes:
    Date: 2013–01–01
  6. By: Katrin Schmitz; Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen)
    Abstract: Germany’s nuclear phase out and an increasing share of fluctuating RES production amplifies the North-South congestion problem in the German electricity grid. But congestion management becomes a serious issue not only in the German but in the whole European electricity system as German wind production does not only affect the German grid. In theory it is well established that nodal pricing is the most efficient congestion management method. In literature the PJM well-established nodal market design often serves as a reference and is viewed as benchmark. To benefit from experiences made in the U.S. the transfer of the PJM market design to Germany could be advantageous. This article compares key elements of the generation mix, the network structure, the cross-border interconnection as well as the congestion situation of both electricity markets to assess potentials and impediments for an implementation of the PJM nodal market design in Germany. We show that both markets are less different in structure than expected but that large differences in performance respectively in congestion frequency lead probably to much lower welfare gains. Transfer of the PJM market design to Germany is possible in principle, but adjustments to RES would be ad-vantageous.
    Keywords: Nodal Pricing, Market Design, Electricity Markets
    Date: 2013–04
  7. By: Marc Joëts (Ipag Business School and EconomiX-CNRS, University of Paris Ouest, France)
    Abstract: This paper proposes to investigate the impact of financialization on energy markets (oil, gas, coal and electricity European forward prices) during both normal times and extreme fluctuation periods through an original behavioral and emotional approach. To this aim, we propose a new theoretical and empirical framework based on a heterogeneous agents model in which fundamentalists and chartists co-exist and are subject to regret and uncertainty. We find significant evidence that energy markets are composed by heterogeneous traders which behave differently depending on the intensity of the price fluctuations and uncertainty context. In particular, energy prices are mainly governed by fundamental and chartist neutral agents during normal times whereas they face to irrational chartist averse investors during extreme fluctuations periods. In this context, the recent energy prices surge can be viewed as the consequence of irrational exhuberance. Our new theoretical model outperforms the random walk in out-of-sample predictive ability.
    Keywords: Energy Forward Prices, Financialization, Heterogeneous Agents, Uncertainty Aversion, Regret
    JEL: Q43 G15 D81
    Date: 2013–04
  8. By: Luke Haywood; Martin Koning
    Abstract: Preferences for transport activities are often considered only in terms of time and money. Whilst congestion in automobile traffic increases costs by raising trip durations, the same is less obvious in public transport (PT), especially rail-based. This has lead many economic analyses to conclude that there exists a free lunch by reducing the attractiveness of automobile transport at no (or little) cost for PT users. This article argues that congestion in PT - crowding - is also costly. Using survey data from the Paris metro we estimate the degree to which users value comfort in terms of less crowding. Using a contingent valuation method (CVM) we describe marginal willingness to pay over different parts of the distribution of in-vehicle crowding and consider moderating factors. We conclude that the total welfare cost for a trip rises from e2.42 for a seated passenger to e3.69 under the most congested conditions. We apply our results to the cost-benefit analysis of a recent investment in PT in Paris and consider broader implications for transport policy. In particular, we highlight that PT congestion is a first-order urban externality.
    Keywords: Evaluation of non-market goods, travel comfort, crowding costs, contingent valuation method, Paris subway
    JEL: D6 H8 R4 L9
    Date: 2013
  9. By: Bekchanov, Maksud; Bhaduri, Anik; Ringler, Claudia
    Abstract: Increasing water demand due to population growth and economic development under the mounted investment costs for developing new water sources calls for efficient, equitable and sustainable management of water resources in many developing countries. This is more essential in the Aral Sea basin where the tremendous development in irrigation since the 1960s combined with unbalanced water resources management led to the destruction of the ecosystems in the delta zone and the gradual desiccation of the Aral Sea, once the fourth biggest lake of the world with a surface area of 68,000 km2 and total water volume of 1,100 km3. Disintegration of the Central Asian states after the collapse of the Soviet Union also increased the tensions among up- and downstream users over sharing water resources. Insufficient investments in irrigation infrastructure, lack of economic incentives to adopt water-wise approaches, and inefficient water governance and institutions have been the main reasons of decreased water use efficiency in the post-Soviet period. Market-based water allocation is tested to deal with aggravating water conflicts in the Aral Sea basin. Aggregated integrated hydro-economic model is constructed to analyze the water market mechanism as an alternative option to the traditional administrative water allocation. Water users are allowed to trading their water use rights and increasing their benefits under this decentralized water management system. The analyses show the availability of additional gains amounted to US$ 373 to 476 million under inter-catchment water trading depending on the level of water availability. Similarly, additional gains of US$ 259 to 339 million are estimated under intra-catchment water trading. Furthermore, increased trend of additional gains from water trading along with decreased water availability are found. However, transaction costs of introducing tradable water rights are essential to judge the effectiveness of water market reforms and initiate appropriate institutional changes. According to our estimations, transaction costs of more than 5 ¢/m3 of traded water use rights eliminate the potential benefits of the water trading option. Friendly relationships among the riparian countries and infrastructural improvements are suggested as a means of developing low cost enforcement of water trading contracts.
    Keywords: water trading, transaction costs, environmental flow, hydro-economic model, Agribusiness, Agricultural Finance, Community/Rural/Urban Development, Crop Production/Industries, Environmental Economics and Policy, Land Economics/Use,
    Date: 2013–04

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