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on Regulation |
| By: | Jonas Egerer; Juan Rosellón; Wolf-Peter Schill |
| Abstract: | We analyze various regulatory regimes for electricity transmission investment in the context of a transformation of the power system towards renewable energy. We study distinctive developments of the generation mix with different implications on network congestion, assuming that a shift from conventional power plants towards renewables may go along with exogenous shocks on transmission requirements, which may be either of temporary or permanent nature. We specifically analyze the relative performance of a combined merchant-regulatory price-cap mechanism, a cost-based rule, and a non-regulated approach in dynamic generation settings. Through application in a stylized two-node network, we find that incentive regulation may perform satisfactorily only when appropriate weights are used. While quasi-ideal weights generally restore the beneficial properties that incentive regulatory mechanisms are well-known for in static settings, pure Laspeyres weights may either lead to overinvestment (stranded investments) or delayed investments as compared to the welfare optimum benchmark. Stranded investments could then be avoided through proper handling of weights. Model results indicate that using average Laspeyres-Paasche weights appears to be an appropriate strategy in the context of permanently or temporarily increasing network congestion. Our analysis motivates further research aimed to characterize optimal regulation for transmission expansion in the context of renewable integration. |
| Keywords: | Electricity transmission, incentive regulation, renewable integration, Laspeyres/Paasche weights, ideal weights |
| JEL: | Q40 Q42 L51 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1312&r=reg |
| By: | Llorca, Manuel; Orea, Luis; Pollitt, Michael |
| Abstract: | The electricity industry in most developed countries has been restructured over recent decades with the aim of improving both service quality and firms’ performance. Regulated segments (e.g. transmission) still provide the infrastructure for the competitive segments and represent a notable amount of the total price paid by final customers. However there is a lack of empirical studies that analyze firms’ performance in the electricity transmission sector. We conduct an empirical analysis of the US electricity transmission companies for the period 2001-2009. We use stochastic frontier models that allow us to identify determinants of firms’ inefficiency and to control for weather conditions, potentially one of the most decisive uncontrollable factors in electricity transportation. Our results suggest that there is room for improvement in the performance of the US electricity transmission system. Regulators should also take into account that more adverse conditions generate higher levels of inefficiency and that achieving long-term efficiency improvements tends to deteriorate firms’ short-term relative performance. |
| Keywords: | electricity transmission, heteroscedastic stochastic cost frontiers, inefficiency determinants |
| JEL: | D22 L51 L94 |
| Date: | 2013–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1318&r=reg |
| By: | Charles A. Holt (University of Virginia); William M. Shobe (University of Virginia) |
| Abstract: | We use a set of economic experiments to test the effects of two key features of California\'s new program for limiting greenhouse gas emissions. The cap & trade scheme included in the program includes two novel features, limits on allowance ownership (or \'holding limits\') and a tiered price containment reserve sale. These program features are linked by their potential to affect liquidity in the market for emission allowances. We examine the effects of these features on liquidity and on measures of market performance including efficiency, price discovery, and price variability. We find that tight holding limits have the effect of substantially lowering the number of banked allowances available for trade, hence lowering liquidity. This impairs the ability of traders to smooth prices over time resulting in lower efficiency, less effective price discovery, and higher variability in price. The price containment reserve, while increasing the supply of allowances available to traders, does not appear to mitigate the effects of tight holding limits on market outcomes. As a result, the imposition of holding limits in the allowance market may have the consequence of increasing the likelihood of the market manipulation that they were intended to prevent. |
| Keywords: | Emission markets; climate change; cap and trade |
| JEL: | Q54 Q58 H |
| Date: | 2013–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:vac:wpaper:wp13-01&r=reg |
| By: | Rosella Levaggi (levaggi@eco.unibs.it); Michele Moretto (michele.moretto@unipd.it); Paolo Pertile (Department of Economics (University of Verona)) |
| Abstract: | The paper uses a real option approach to investigate the potential impact of performance-based risk-sharing agreements for the reimbursement of new drugs in comparison with standard cost-effectiveness thresholds. The results show that the exact definition of the risk-sharing agreement is key in determining its economic effects. In particular, despite the concerns expressed by some authors, the incentive for a firm to invest in R&D may be the same or even greater than under cost-effectiveness thresholds, if the agreement is sufficiently mild in defining the conditions under which the product is not (fully) reimbursed to the firm. In this case, patients would benefit from earlier access to innovations. The price for this is less value for money for the insurer at the time of adoption of the innovation. |
| Keywords: | pharmaceutical regulation, real options, R&D, risk-sharing |
| JEL: | I18 L51 C61 |
| Date: | 2013–08 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:13/2013&r=reg |
| By: | Klaus Friesenbichler |
| Abstract: | This study analyses the diffusion of renewable energy (RE) technologies. It analyses the transition dynamics as the sector broadens its energy mix and changes its capital stock. This shift is found to be desirable from an environmental, geopolitical and economic perspective. Yet, it greatly increases the technical and industrial complexity, and is not Pareto-efficient. We focus on wind and solar power, and discuss their promoted deployment against the energy policy principles of the EU. Put drastically, the promotion of ‘sustainability’ undermined ‘competitive’ mechanisms. This has potentially adverse effects on the ‘security of supply’ due to the market design that seeks to keep prices low. RE outperforms conventional facilities. Emergency capacities, however, are also exiting, especially in Germany. If markets are seen as one, there seems to be a threshold of wind and solar power that the current back-up system can incorporate without risking the security of supply. The policy relevant crux lies in conflicting mechanisms: the top-down promotion and planning policies undermine the bottom-up market selection. Then again, without interventions the market does not provide the socially desired outcomes. If tensions aggravate further, the implementation of the new technology base is likely to stall. In addition, the generous promotion resulted in the fast deployment of RE, which may have shortened the ‘formative phase’ of the diffusion process. A longer formative phase would have created more learning effects and fostered more incremental innovations. In addition, costs of subsidies are allocated differently across countries. Mechanisms that allocate costs to the public budget have greater acceptance rates than budget neutral ones that assign costs to consumers. The latter affect households asymmetrically across income classes. Also ownership structures changed; a large number of actors now constitute the energy sector. Citizens increasingly appeared as producers and investors, which stimulated the social acceptance of RE, and in some cases unlocked initially unfavourable vested interests. |
| Keywords: | Cost incidence, diffusion, ecological innovation, economic strategy, electricity, European economic policy, industrial innovation, industrial policy, innovation, innovation policy, institutional reforms, multi-level governance, new technologies, ownership, policy options, renewable energy, security of supply, smart meter, social construction of technology, social innovation, sustainable growth, technology promotion |
| JEL: | O31 O33 P48 Q48 Q58 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:feu:wfewop:y:2013:m:7:d:0:i:31&r=reg |
| By: | Graziano Abrate (Department of Business Management and Environment, University of Eastern Piedmont); Federico Boffa (Department of Law and Economics, University of Macerata); Fabrizio Erbetta (Department of Business Management and Environment, University of Eastern Piedmont); Davide Vannoni (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy) |
| Abstract: | This paper explores the link between accountability, corruption and efficiency in the context of a career concern model where politically connected local monopolies are in charge of the provision of a local public service. We find that both corruption and a low degree of accountability induce managers to reduce effort levels, thereby contributing to drive down efficiency. Our predictions are tested using data on solid waste management services provided by a large sample of Italian municipalities. The results of the estimation of a stochastic cost frontier model provide robust evidence that high corruption levels and low degrees of accountability substantially increase cost inefficiency. Finally, we show that the negative impact of corruption is weaker for municipalities ruled by left-wing parties, while the positive impact of accountability is stronger if the refuse collection service is managed by limited liability companies. |
| Keywords: | corruption, accountability efficiency, solid waste. |
| JEL: | D24 D72 D73 L25 Q53 |
| Date: | 2013–07 |
| URL: | http://d.repec.org/n?u=RePEc:tur:wpapnw:022&r=reg |