nep-reg New Economics Papers
on Regulation
Issue of 2013‒07‒20
eight papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Now or Later? Trading wind power closer to real-time and how poorly designed subsidies lead to higher balancing costs By Mauritzen, Johannes
  2. Nudging Energy Efficiency Behavior: The Role of Information Labels By Newell, Richard G.; Siikamäki, Juha
  3. The New CAFE Standards: Are They Enough on Their Own? By McConnell, Virginia
  4. The Welfare Effects of Regulating the Number of Market Segments in Linear Demand Markets By Yann Braouezec
  5. Reputation and Entry By Butler, Jeffrey V.; Carbone, Enrica; Conzo, Pierluigi; Spagnolo, Giancarlo
  6. An Experimental Analysis of Single vs. Multiple Bids in Auctions of Divisible Goods By Rosen, Christiane; Madlener, Reinhard
  7. Economics of Small Wind Power Plants in Urban Settings: An Empirical Investigation for Germany By Grieser, Benno; Madlener, Reinhard; Sunak, Yasin
  8. The Social Cost of Carbon Emissions By Duncan Foley; Lance Taylor; Armon Rezai

  1. By: Mauritzen, Johannes (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: An important challenge facing many deregulated electricity markets is dealing with the increasing penetration of intermittent generation. Simulation studies have pointed to the advantages of trading closer to real-time with large amounts of intermittent generation. Using Danish data, I show that, as expected, shortfalls increase the probability of trade on the shortterm market. But in the period between 2010 and 2012 surpluses are shown to decrease the probability of trade. This unexpected result is likely explained by wind power policies that discourages trading on Elbas and leads to unnecessarily high balancing costs. I use a rollingwindow regression to support this claim.
    Keywords: Deregulated electricity markets; intermittent generation; wind power
    JEL: Q42 Q48
    Date: 2013–04–25
  2. By: Newell, Richard G.; Siikamäki, Juha (Resources for the Future)
    Abstract: We evaluate the effectiveness of energy efficiency labeling in guiding household appliance choice decisions. Using a carefully designed choice experiment with several alternative labeling treatments, we disentangle the relative importance of different types of information and intertemporal behavior (i.e., discounting) in guiding energy efficiency behavior. We find that simple information on the economic value of saving energy was the most important element guiding more cost-efficient investments in appliance energy efficiency, with information on physical energy use and carbon dioxide emissions having additional but lesser importance. The degree to which the current EnergyGuide label guided cost-efficient decisions depends importantly on the discount rate assumed appropriate for the analysis. Using individual discount rates separately elicited in our study, we find that the current EnergyGuide label came very close to guiding cost-efficient decisions, on average. However, using a uniform five percent rate for discounting—which was much lower than the average individual elicited rate—the EnergyGuide label led to choices that result in a one-third undervaluation of energy efficiency. We find that labels that not only nudged people with dispassionate monetary or physical information, but also endorsed a model (with Energy Star) or gave a suggestive grade to a model (as with the EU-style label), had a substantial impact in encouraging the choice of appliances with higher energy efficiency. Our results reinforce the centrality of views on intertemporal choice and discounting, both in terms of understanding individual behavior and in guiding public policy decisions.
    Keywords: energy efficiency behavior, gap, information label, discounting, time preference gap, choice experiment, mixed logit
    JEL: C91 D12 D91 D83 H43 Q41 Q48
    Date: 2013–07–03
  3. By: McConnell, Virginia (Resources for the Future)
    Abstract: New Corporate Average Fuel Economy (CAFE) standards were recently passed in the United States with the twin goals of reducing greenhouse gas emissions and oil use. The new standards represent a dramatic change from recent policy. This paper examines the key features of the new rules, and compares them to previous CAFE standards in terms of flexibility and structure. The importance of consumer preferences and market forces on CAFE outcomes are identified. In the second part of the paper, the perspective of the consumer is explored. Consumer assessments of fuel economy savings with more fuel-efficient vehicles may be biased or incomplete, leading many to argue that there is an “energy efficiency gap” in consumer demand for vehicles. Reasons for such a gap, such as market failures, behavioral responses, and market barriers, are summarized. The implications for policy are discussed, including the role of combining CAFE with other policies.
    Keywords: CAFE, vehicle regulation, energy efficiency, environmental policy
    JEL: Q42 Q48 Q54 Q58
    Date: 2013–05–01
  4. By: Yann Braouezec (IESEG School of Management (LEM-CNRS))
    Abstract: We consider a model in which the monopolist faces N different markets while the regulator chooses the number k of prices, where k is an integer between 1 and N. The monopolist thus faces a combinatorial optimization problem, the solution of which is called the optimal profit policy. We show that the number of discriminatory prices that maximizes the social welfare is never higher than a threshold k < N. This result thus allows us to disentangle the good aspect of third-degree price discrimination, the so-called output effect, from the bad one, that we call the pure profit effect. Further results are provided for the specific case of parallel demands. Finally, non-linear demands are briefly considered.
    Keywords: Monopoly, third-degree price discrimination, market segmentation, mixed-integer programming problem, regulation, principle of optimal partitioning
    JEL: D42 L11 L50
    Date: 2013–06
  5. By: Butler, Jeffrey V. (EIEF); Carbone, Enrica (Second University of Naples "SUN"); Conzo, Pierluigi (University of Turin); Spagnolo, Giancarlo (Stockholm School of Economics - SITE, University of "Tor Vergata" & CEPR)
    Abstract: There is widespread concern among regulators that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new firms in public procurement markets. In this paper we report results from a laboratory experiment exploring the relationship between reputation and entry in procurement. We implement a repeated procurement model with reputation for quality and the possibility of entry in which the entrant may start off with positive reputation. Our results suggest that while some past-performance based reputational mechanisms can reduce the frequency of entry, appropriately designed mechanisms significantly stimulate it. We find that our reputational mechanism increases quality but not prices, so that the introduction of this kind of mechanism may generate large welfare gains for the buyer.
    Keywords: Cross-border procurement; Entry; Feedback mechanisms; Incomplete contracts; Limited enforcement; Incumbency; Multidimensional competition; Outsourcing; Past performance; Procurement; Quality assurance; Small business subsidies; Reputation; Vendor rating
    JEL: H57 L14 L15
    Date: 2013–05–15
  6. By: Rosen, Christiane (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In this paper we report on an experiment we conducted that has been inspired by energy trading. Bidders with a portfolio consisting of three cost-quantity pairs bid into a market with a single buyer. Depending on the treatment, they are allowed to submit either one or two bids constructed from their endowments. The novelty of our study is the experimental examination of a procurement auction in the context of divisible goods and the evaluation of the effect of multiple bids in comparison to single bids in such an auction. We created both a low and a high competition scenario to evaluate the effects of competitive forces on each auction format. We find that multiple bids have a calming effect on the market, reducing volatility substantially. However, this comes at the cost of lower profits for bidders, whereas auctioneer’s revenue is maximized. At the same time, supply reduction, which is equivalent to demand reduction in demand auctions, is more pronounced in the multiple-bid setting. A reason for this might be that expensive units are driven out of the market more easily in the multi-bid setting, as they can no longer be offered without causing loss of market efficiency during dispatch.
    Keywords: Divisible good auction; laboratory experiment; discriminatory pricing; multiple bids
    JEL: C72 C91 D44
    Date: 2013–04
  7. By: Grieser, Benno (RWTH Aachen University); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Sunak, Yasin (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In this paper we investigate the location-specific attractiveness of small wind turbines (SWT) for private households. In order to assess the economic viability of an investment in SWT, we analyze a set of scenarios that incorporate different types of SWT, various storage system options, support schemes, and specific urban surroundings for the case of Germany. As urban structures substantially influence local wind speeds, and hence the potential energy yield of a turbine, the potential location of the SWT in the urban area is crucial for the economic feasibility. We find that SWT today are only profitable under very favorable conditions, the most important parameters being prevailing wind speeds and the location’s degree of urbanization. In most cases, the coupling of the SWT to a storage system is crucial for cost-effectiveness. A feed-in tariff system specifically adapted to the SWT technology is found to be an important driver of diffusion. Further research needs are identified in the field of long-term performance and yield projections for SWT. Based on the findings from our study, significant SWT diffusion can be expected, if at all, only in coastal suburban and rural areas.
    Keywords: small wind turbine; energy storage; urban environment; feed-in tariffs
    JEL: O18 Q42 Q48
    Date: 2013–01
  8. By: Duncan Foley; Lance Taylor; Armon Rezai
    Abstract: Determining the social cost of carbon emissions (SCC) is a crucial step in the economic analysis of climate change policy as the US government's recent decision to use a range of estimates of the SCC centered at $77/tC (or, equivalently, $21/tCO2) in cost-benefit analyses of proposed emission-control legislation underlines. This note reviews the welfare economics theory fundamental to the estimation of the SCC in both static and intertemporal contexts, examining the effects of assumptions about the typical agent's pure rate of time preference and elasticity of marginal felicity of consumption, production and mitigation technology, and the magnitude of climate-change damage on estimates of the SCC. We highlight three key conclusions: (i) an estimate of the SCC is conditional on a specific policy scenario, the details of which must be made explicit for the estimate to be meaningful; (ii) the social discount rate relevant to intertemporal allocation decisions also depends on the policy scenario; and (iii) the SCC is uniquely defined only for policy scenarios that lead to an efficient growth path because marginal costs and benefits of emission mitigation diverge on inefficient growth paths. We illustrate these analytical conclusions with simulations of a growth model calibrated to the world economy.
    Date: 2013–03–12

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