|
on Regulation |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2013019&r=reg |
| By: | Vincent van den Berg (VU University Amsterdam) |
| Abstract: | Consider a government tendering the right to operate, for example, an airport, telecommunication network, or utility. There is an 'incumbent bidder' who owns a complement or substitute facility, and one entering 'new bidder'. With a 'standard auction' on the payment to the government, the incumbent is willing to bid higher than its expected profit from the facility as winning implies that it is a monopolist instead of a duopolist. The incumbent is therefore more likely to win. However, it tends to have a lower expected surplus unless the new bidder can never win, which occurs with 'private values' when the facilities are strong complements or substitutes and always with 'common values'. The 'standard auction' leads to an unregulated outcome which hurts consumers as tendered facilities tend to have limited competition. The government could improve the outcome by endogenously regulating using a 'price auction' on the price to be a sked to consumers. Now, it depends who is advantaged: with complements, the incumbent bids below its marginal cost and is more likely to win; with substitutes, it bids above and is less likely to win. The same effects occur in auctions on service quality or number of users. In many settings, the advantaged bidder always wins, and this can greatly affect the competition for the field. |
| Keywords: | tendering, overbidding, advantaged bidders, network markets |
| JEL: | D43 D44 L51 R42 |
| Date: | 2013–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2013033&r=reg |
| By: | Yoshifumi Konishi (Faculty of Liberal Arts, Sophia University); Nori Tarui (Department of Economics, University of Hawaii at Manoa) |
| Abstract: | We investigate the long-run impact of environmental regulations on the intra-industry distribution of firm-level productivity and the resulting aggregate variables. In a general-equilibrium model that accounts for endogenous entry/exit of heterogeneous firms, neither the average productivity of firms nor the mass of firms is independent of the choice of policy instruments (i.e. emissions tax vs. emissions trading) or permit allocation rules. The equilibrium price of permits under emissions trading is lower than the emissions tax rate that would support the same aggregate emissions. An incomplete emissions market results in a net increase in combined aggregate emissions. |
| Keywords: | Emissions Tax; Emissions Trading; Heterogeneous Firms; Endogenous Entry/Exit; Melitz Model; Incomplete Regulation; Emissions Leakage |
| JEL: | Q50 Q52 Q58 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201307&r=reg |
| By: | Ioannis Tikoudis (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam); Jos N. van Ommeren (VU University Amsterdam) |
| Abstract: | This paper explores the interactions between congestion pricing and a tax-distorted labor market within a monocentric urban equilibrium model. We compute the efficiency gains of various second-best policies, i.e. combinations of toll schemes and revenue recycling programs, with a predetermined level of public revenue. We find that 35% of the space-varying road tax does not reflect marginal external congestion costs, but rather functions as a Ramsey-Mirrlees tax, i.e. an efficiency enhancing mechanism allowing space differentiation of the labor tax. Such a space-varying tax adds a quite different motivation to road pricing, since it can produce large welfare gains even in the absence of congestion. We show that both a cordon toll and a flat kilometer tax achieve over 80% of these gains when combined with specific types of revenue recycling, such as labor tax cuts or public transport subsidies. Sensitivity analysis shows that the optimal type of revenue recycling depends on the level of inefficiency in the provision of public transport prior to the introduction of congestion pricing. |
| Keywords: | Second-best road pricing, revenue recycling, monocentric city |
| JEL: | R41 R48 H23 H76 J20 R13 R14 |
| Date: | 2013–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2013031&r=reg |
| By: | Severin Borenstein |
| Abstract: | Improving the efficiency with which we use energy is often said to be the most cost-effective way to reduce energy use and greenhouse gas emissions. Yet, such improvements usually lower the cost of using energy-intensive goods and may create wealth from the energy savings, both of which lead to increased energy use, a "rebound'' effect. Disagreements about the magnitude of energy efficiency rebound are immense and play a central role in debates over the role energy efficiency can play in combating climate change. But these differing views seem to stem as much from the lack of a common framework for the analysis as from different estimates of key parameters. I present a theoretical framework that parses rebound into economic income and substitution effects. The framework captures the wide range of rebound effects that have been termed direct, indirect, re-spending, and transformational rebound, among others. It does not capture economy-wide impacts, such as the potential for a macroeconomic multiplier or the impact on energy prices, which I discuss separately. I then explore the implications of this framework for measurement of rebound, examining rebound from improved auto fuel economy and lighting efficiency. The illustrative calculations I carry out suggest that rebound that more than offsets the savings from energy efficiency investments (known as "backfire") is unlikely, but rebound is likely to significantly reduce the net savings from at least these energy efficiency improvements. |
| JEL: | Q4 Q41 Q48 Q54 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19044&r=reg |
| By: | Daniel Nachtigall; Dirk Rübbelke |
| Abstract: | We investigate the effect of climate policies on fossil fuel use in the presence of a clean alternative technology that exhibits learning-by-doing. In a two-period framework, the costs of clean and regenerative energy in the second period are decreasing with the amount of this energy produced in the first one. While a carbon tax on present fossil fuels always reduces the use of the conventional energy source, the effect of a subsidy for regenerative energy is ambiguous and depends on the size of the learning effect. For small learning effects, a subsidy reduces the present use of fossil fuels since their substitute becomes comparatively cheap. However, for larger learning effects, a subsidy leads to the green paradox as the cost reduction in the clean energy sector reduces the future demand for conventional energy and brings forward extraction. We conclude that the best way to reduce present CO2 emissions is the implementation of a carbon tax. If the learning effect is small, the carbon-tax revenues should additionally finance the subsidy for the renewable energy.<br /> |
| Date: | 2013–04 |
| URL: | http://d.repec.org/n?u=RePEc:bcc:wpaper:2013-09&r=reg |
| By: | Erik T. Verhoef (VU University Amsterdam) |
| Abstract: | The famous Mohring-Harwitz theorem states that, under certain technical conditions, the degree of self-financing of congested infrastructure is equal to the elasticity of the capacity cost function in the optimum, so that under neutral scale economies exact self-financing applies. Although the theorem has been proven to remain valid for various extensions of the basic set-up for which it was originally derived, it breaks down when the infrastructure is used by operators with market power when competing in Cournot fashion, the case in point often being oligopolistic airlines at a congested airport. This paper proposes a regulatory scheme, not involving lump-sum payments or budget constraints in the optimal pricing problem, that restores self-financing for congested infrastructure for this market form. What is more, under the proposed scheme, exact self-financing applies independent of the elasticity of the capacity cost function. The result remains true both for the case where operators treat the tolls parametrically, and for 'manipulable' tolls, designed to account for the fact that operators with market power can be expected to be aware of, and exploit, the fact that toll are not truly parametric, but instead depend on their own behaviour. |
| Keywords: | Congestion pricing, capacity choice, self-financing infrastructure, market power, airport congestion |
| JEL: | R41 R48 D62 |
| Date: | 2012–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012064&r=reg |
| By: | Adriaan Hendrik van der Weijde (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam); Vincent van den Berg (VU University Amsterdam) |
| Abstract: | We analyse the behaviour of market participants in a multi-modal commuter network where roads are not priced, but public transport has a usage fee, which is set while taking the effects on the roads into account. In particular, we analyse the difference between markets with a monopolistic public transport operator, which operates all public transport links, and markets in which separate operators own each public transport link. To do so, we consider a simple transport network consisting of two serial segments and two parallel congestible modes of transport. We obtain a reduced form of the public transport operator's optimal fare setting problem and show that, even if the total travel demand is inelastic, serial Bertrand-Nash competition on the public transport links leads to different fares than a serial monopoly; a result not observed in a static model. This results from the fact that trip timing decisions, and therefore the generalized prices of all commuters, are influenced by all fares in the network. We then use numerical simulations to show that, contrary to the results obtained in classic studies on vertical competition, monopolistic fares are not always higher than duopolistic fares; the opposite can also occur. We also explore how different parameters influence the price differential, and how this affects welfare. |
| Keywords: | Public transport, congestion, market structure, market design |
| JEL: | L10 L92 R41 R48 |
| Date: | 2012–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012116&r=reg |
| By: | Sergejs Gubins (VU University Amsterdam); Erik T. Verhoef (VU University Amsterdam) |
| Abstract: | We consider a monocentric city where a traffic bottleneck is located at the entrance of the central business district. The commuters' choices of the departure times from home, residential location, and lot size, are all endogenous. We show that elimination of queuing time under optimal road pricing induces individuals to spend more time at home and to have larger houses, causing urban sprawl. This is opposite to the typical results of urban models with static congestion, which predict cities to become denser with road pricing. |
| Keywords: | dynamic traffic congestion, urban equilibrium, road pricing, bottleneck model, monocentric model |
| JEL: | D62 R21 R41 R48 |
| Date: | 2012–12–10 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:2012137&r=reg |