nep-reg New Economics Papers
on Regulation
Issue of 2013‒06‒30
six papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Transparency in Electricity Markets By von der Fehr, Nils-Henrik M.
  2. Energy Intensive Infrastructure Investments with Retrofits in Continuous Time: Effects of Uncertainty on Energy Use and Carbon Emissions By Framstad, Nils Chr.; Strand, Jon
  3. Product market regulation and innovation efficiency By Chiara Franco; Fabio Pieri; Francesco Venturini
  4. Uncertainty in optimal pollution levels: Modeling the benefit area By Halkos, George
  5. When can environmental profile and emissions reductions be optimized independently of the pollutant level? By Framstad, Nils Chr.
  6. Imitation versus Innovation Costs: Patent policies under common patent length By ICHIDA Toshihiro

  1. By: von der Fehr, Nils-Henrik M. (Dept. of Economics, University of Oslo)
    Abstract: The European Commission is introducing new regulations on submission and publication of data in electricity markets (SPDEM) and on wholesale energy market integrity and transparency (REMIT). I discuss issues relevant for undertaking an evaluation such regulations. I argue that, for market performance, more information is not always better; indeed, more information may undermine market performance by facilitating behaviour that is either not cost efficient or aims at exercising market power or establishing and maintaining collusion. Moreover, ensuring rational economic behaviour and an efficient and competitive market outcome does not require general access to information at a very detailed level or with a high degree of immediacy. I conclude that to achieve the aims of efficiently functioning wholesale electricity markets, fair and non-discriminatory access to data and a coherent and consistent view of the European wholesale electricity market, it does not seem advisable to go quite so far with respect to immediacy and detail as intended by the new regulations.
    Keywords: electricity; market performance; information; transparency; regulation
    JEL: D40 D80 K21 L10 L40 L51 L94
    Date: 2013–05–22
  2. By: Framstad, Nils Chr. (Dept. of Economics, University of Oslo); Strand, Jon (Dept. of Economics, University of Oslo)
    Abstract: Energy-intensive infrastructure may tie up fossil energy use and carbon emissions for a long time after investments, making the structure of such investments crucial for society. Much or most of the resulting carbon emissions can often be eliminated later, through a costly retrofit. This paper studies the decisions to invest in such infrastructure, and retrofit it later, given that future climate damages are uncertain and follow a geometric Brownian motion process with positive drift. It shows that greater uncertainty about climate cost (for given unconditional expected costs) then delays the retrofit decision by increasing the option value of waiting to invest. Higher energy intensity is also chosen for the initial infrastructure when uncertainty is greater. These decisions are efficient given that energy and carbon prices facing the decision maker are (globally) correct, but would be inefficient when they are lower, as typical in practice. Greater uncertainty about future climate costs will then further increase lifetime carbon emissions from the infrastructure, related both to initial investments, and to too infrequent retrofits when this emissions level is already too high. An initially excessive climate gas emissions level is then likely to be worsened when volatility increases.
    Keywords: Greenhouse gas emissions; long-term investments; retrofits; uncertainty; option value of waiting
    JEL: C61 Q54 R42
    Date: 2013–05–16
  3. By: Chiara Franco (Department of International Economics, Institutions and Development, Catholic University of the Sacred Heart of Milan); Fabio Pieri (Departamento de Estructura Economica (Economia Aplicada II), Universitat de Valencia); Francesco Venturini (Department of Economics, Finance and Statistics, University of Perugia)
    Abstract: We study the role of upstream product market regulation (PMR) on innovation efficiency. By estimating a knowledge production function for a large sample of OECD industries through a stochastic frontier analysis, we find that service regulation remarkably reduces R&D efficiency in the manufacturing sector. These results are robust to controlling for the institutional setting of the technology, the labour and the financial market, as well as to various forms of heterogeneity such as, for instance, non-linearities in the effect of PMR. The marginal impact of upstream regulation is higher in less regulated economies indicating that large improvements in R&D efficiency cannot be achieved at the earlier stages of deregulation. We quantify total gains in R&D efficiency and patenting that could be obtained by late reforming countries by liberalizing the product market.
    Keywords: R&D, knowledge production, eciency, product market regulation
    JEL: L5 L6 O3 O5
    Date: 2013–05
  4. By: Halkos, George
    Abstract: This paper identifies the optimal pollution level under the assumptions of linear, quadratic and exponential damage and abatement cost functions and investigates analytically the certain restrictions that the existence of this optimal level requires. The evaluation of the benefit area is discussed and the mathematical formulation provides the appropriate methods, so that to be calculated. The positive, at least from a theoretical point of view, is that both the quadratic and the exponential case obey to the same form of evaluating the benefit area. These benefit area estimations can be used as indexes between different rival policies and depending on the environmental problem the policy that produces the maximum area will be the beneficial policy.
    Keywords: Benefit area; damage cost; abatement cost; pollution.
    JEL: C02 C62 Q51 Q52 Q53
    Date: 2013–06
  5. By: Framstad, Nils Chr. (Dept. of Economics, University of Oslo)
    Abstract: Consider a model for optimal timing of emissions reduction, trading off the cost of the reduction against the time-additive aggregate of environmental damage, the disutility from the pollutant stock M(t) the infrastructure contributes to. Intuitively, the optimal timing for an infinitesimal pollution source should reasonably not depend on its historical contribution to the stock, as this is negligible. Dropping the size assumption, we show how to reduce the minimization problem to one not depending on the history of M, under linear evolution and suitable linearity or additivity conditions on the damage functional. We employ a functional analysis framework which allows for delay equations, non-Markovian driving noise, a choice between discrete and continuous time, and a menu of integral concepts covering stochastic calculi less frequently used in resource and environmental economics. Examples are given under the common (Markovian Itô) stochastic analysis framework.
    Keywords: Optmal control; optimal stopping; environmental policy; emissions reduction; linear model; Banach space; stochastic differential equations
    JEL: C61 Q52
    Date: 2013–05–16
  6. By: ICHIDA Toshihiro
    Abstract: This paper investigates the interaction between innovation and imitation costs for heterogeneous ideas (industries). It analyzes the effect of various patent-related policies under the common patent length across different industries. It also looks at a policy that will strengthen trade secrets such as the Soleau envelope policy. Under the common term of patent with moderate assumption about the joint distribution of costs, the model predicts the existence of imitating products which are successfully invented around the original patent.
    Date: 2013–06

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