nep-reg New Economics Papers
on Regulation
Issue of 2013‒12‒15
fourteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Prices vs. quantities with endogenous cost structure By Halvor Briseid Storrøsten
  2. Gas Network and Market: à la carte? By Miguel Vazquez; Michelle Hallack; Jean-Michel Glachant
  3. Private Politics and Public Regulation By Georgy Egorov; Bård Harstad
  4. Level of Access and Infrastructure Investment in Network Industries By M. Bourreau; P. Dogan; R. Lestage
  5. Pollution Permit Systems and Firm Dynamics: Does the Allocation Scheme Matter? By Evangelina Dardati
  6. Innovation and Regulation in the Telecommunications Industry By M. Bourreau; P. Dogan
  7. Conscription as Regulation By Casey Mulligan; Andrei Shleifer
  8. Self-Regulation, Negotiated Agreements and Social Welfare By Thomas P. Lyon; John W. Maxwell
  9. The Regulation of Entry By Simeon Djankov; Rafael LaPorta; Florencio Lopez-de-Silanes; Andrei Shleifer
  10. An Activity-Generating Theory of Regulation By Joshua Schwartzstein; Andrei Shleifer
  11. Service-based versus Facility-based Competition in Local Access Networks By M. Bourreau; P. Dogan
  12. The Economic Costs of Unsupplied Electricity: Evidence from Backup Generation among African Firms By Musiliu O. Oseni; Michael G. Pollitt
  13. What blows in with the wind? By De Silva, Dakshina G.; McComb, Robert P.; Schiller, Anita R.
  14. Liberalization of electricity retailing in Europe: coming back or going forth? By Silvia Concettini; Anna Créti

  1. By: Halvor Briseid Storrøsten (Statistics Norway)
    Abstract: Authorities often lack information for efficient regulation of the commons. This paper derives a criterion comparing prices versus tradable quantities in terms of expected welfare, given uncertainty, optimal policy and endogenous cost structure. I show that one cannot determine which regulatory instrument that induces the highest expected welfare based on the relative curvatures of the cost and benefit functions alone. Furthermore, optimal policy involves different production (or price) targets across the regulatory instruments, and does not equalize marginal costs and expected marginal benefits under prices. The reason is that firms choose a cost structure which induces exaggerate fluctuations in consumption of the public good under prices, and the regulator has to compensate for this when determining optimal policy. Because no such negative externality arises under quantities, the relative performance of prices is deteriorated. A numerical illustration suggests significant impact. Finally, either regulatory instrument may induce the highest technology investment levels.
    Keywords: Regulation; Technology choice; Uncertainty; Investment; Welfare.
    JEL: Q52 Q58 D81 H41
    Date: 2013–10
  2. By: Miguel Vazquez; Michelle Hallack; Jean-Michel Glachant
    Abstract: The institutional setting of open gas networks and markets is revealing considerably diverse and diverging roads taken by the US, the EU or Australia. We will show that this is explained by key choices made in the liberalization process. This liberalization is based on a redefinition of the property rights associated with transmission grid usage. That leads to different systems for the transmission services, as well as for the gas commodity trade, which in turn depends on the network services to get any market deal actually implemented. Not only do those choices depend on the physical architecture of the network, but also the perceived difficulties and costs to coordinate the actual transmission services through certain market arrangements.
    Keywords: network regulation, gas market, property rights, carriage systems
    Date: 2013–10
  3. By: Georgy Egorov; Bård Harstad
    Abstract: We develop a dynamic game to explore the interaction between regulation and private policies, such as self-regulation by firms and activism. Without a public regulator, the possibility of self-regulation is bad for the firm, but good for activists who are willing to maintain a costly boycott to raise the likelihood of self-regulation. Results are reversed when the regulator is present: the firm then self-regulates to preempt public regulation, while activists start and continue boycotts to raise the likelihood of such regulation. Our analytical results describe when a boycott is likely, and when it may be expected to be short and/or successful. The model generates a rich set of testable comparative statics.
    JEL: D78 L31 L51
    Date: 2013–12
  4. By: M. Bourreau; P. Dogan; R. Lestage
  5. By: Evangelina Dardati (Facultad de Economía y Negocios, Universidad Alberto Hurtado)
    Abstract: Most cap-and-trade systems allocate permits for free. However, they differ dependent on whether closing plants and new entrants get free permits. I use a dynamic model with heterogeneous firms and equilibrium conditions in the output and emission market to quantify the effect on exit/entry, investment and welfare of different allocation rules. I calibrate the model with data from the power plants participating in the US SO2 program and quantify the effects of two allocation schemes: The US SO2 case, in which closing plants keep their permits and new entrants do not get any of them; The EU-ETS case, in which plants lose permits upon exit and new entrants get allowances. If the US switched to the EU-ETS allocation scheme, the price of output would be 1:5% lower, the price of permits 7.6% higher, and there would be a distribution of dirtier and less productive plants. Consumers are better off if the US switched to the EU-ETS system (lower price), while producers are better off with the US SO2 system (higher profits).
    Date: 2013–03
  6. By: M. Bourreau; P. Dogan
  7. By: Casey Mulligan; Andrei Shleifer
  8. By: Thomas P. Lyon (Department of Business Economics and Public Policy, Indiana University Kelley School of Business); John W. Maxwell (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: The literature on voluntary agreements studies self-regulation, negotiated agreements and public voluntary programs, typically in the shadow of a legislative threat. Prior studies have examined each of these instruments in isolation, but interactions between them have received less attention. We show that in the presence of multiple voluntary instruments, equilibrium outcomes and welfare results depend critically on the timing of moves and the bargaining power of each player. In contrast to prior work, we find conditions under which a full-information equilibrium involves self-regulation and no negotiated agreement. We also show that the opportunity to sign a negotiated agreement only reduces welfare when the regulator has little bargaining power and the firm can commit to an inefficient threat to eschew self-regulation should negotiations fail. More generally, we stress the need for the literature to take account of the "technological detail" of particular contexts when studying voluntary agreements.
    JEL: L0
    Date: 2012–07
  9. By: Simeon Djankov; Rafael LaPorta; Florencio Lopez-de-Silanes; Andrei Shleifer
    Abstract: We present new data on the regulation of entry of start-up firms in 85 countries. The data cover the number of procedures, official time, and official cost that a start-up must bear before it can operate legally. The official costs of entry are extremely high in most countries. Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but not better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry. The evidence is inconsistent with public interest theories of regulation, but supports the public choice view that entry regulation benefits politicians and bureaucrats.
  10. By: Joshua Schwartzstein; Andrei Shleifer
    Abstract: We propose an activity-generating theory of regulation. When courts make errors, tort litigation becomes unpredictable and as such imposes risk on firms, thereby discouraging entry, innovation, and other socially desirable activity. When social returns to innovation are higher than private returns, it may pay the society to generate some information ex ante about how risky firms are, and to impose safety standards based on that information. In some situations, compliance with such standards should entirely preempt tort liability; in others, it should merely reduce penalties. By reducing litigation risk, this type of regulation can raise welfare.
  11. By: M. Bourreau; P. Dogan
  12. By: Musiliu O. Oseni; Michael G. Pollitt
    Abstract: Public electricity provision in Africa has been marred by under investment and frequent power outages. One of the strategies often adopted by firms to cope with this poor public supply is investment in backup generation. This strategy is not without cost however. Extant literatures on outage cost estimation have shown that firms possessing certain characteristics have a higher tendency to invest in backup generation. What is less known, however, is whether those firms suffer lesser or higher unmitigated outage losses (costs). Using cross-sectional data from 6854 firms currently operating in 12 African countries, this study investigated the extent to which firms’ characteristics might create incentives for auto-generation and whether these incentives lead to lesser unmitigated outage costs. We used three different methods including marginal cost, incomplete backup and subjective evaluation techniques. The results reveal that large firms, firms engaging in exports, and those using the Internet for their operation still suffer higher unmitigated outage costs despite having a higher propensity of investing in backup generation. The results further reveal that unmitigated costs still account for the larger proportion of the total outage costs despite high prevalence of backup ownership among the firms. This reflects the inefficiency in backup generation due to small backup capacity held by firms. Our estimates also indicate that ignoring firms’ characteristics such as size and the nature of operation (e.g. export promotion, internet usage, etc.) may result in underestimation of outage losses. The analysis further suggests that firms can still benefit significantly even when the current subsidised tariffs are replaced by cost-reflective rates that ensure stable electricity supply. The net outage cost (having adjusted for a cost-reflective tariff) incurred by firms are large enough to expand their scope of operation and hire more workers, suggesting the macroeconomic effect could be significant.
    Keywords: Africa, Backup, Electricity, Firms, Outage costs, Two-Limit Tobit
    JEL: L6 L81 L94 N77 Q4
    Date: 2013–04–12
  13. By: De Silva, Dakshina G.; McComb, Robert P.; Schiller, Anita R.
    Abstract: The shift toward renewable forms of energy for electricity generation in the electricity generation industry has clear implications for the spatial distribution of generating plant. Traditional forms of generation are typically located close to the load or population centers, while wind and solar-powered generation must be located where the energy source is found. In the case of wind, this has meant significant new investment in wind plant in primarily rural areas that have been in secular economic decline. This paper investigates the localized economic impacts of the rapid increase in wind power capacity at the county level in Texas. Unlike Input-Output impact analysis that relies primarily on levels of inputs to estimate gross impacts, we use traditional econometric methods to estimate net localized impacts in terms of employment, personal income, and property tax base. While we find evidence that both direct and indirect employment impacts are modest, significant increases in per capita income accompany wind power development. County and school property tax rolls also realize important benefits from the local siting of utility scale wind power.
    Keywords: Wind energy, industry growth, per capita income, tax base.
    JEL: H2 H23 H7 H72 Q4 Q42 Q48 R1 R11
    Date: 2013–12–02
  14. By: Silvia Concettini (Universita degli Studi di Milano - [-], Université Paris Ouest Nanterre La Défense - [-]); Anna Créti (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, Université Paris Dauphine - [-])
    Abstract: The aim of this article is to provide a mid-term evaluation of liberalization of electricity retailing in Europe taking into account some relevant analytic con- straints: di erent and often conflicting theoretical points of view, shortage of routinely collected data, problems in isolating the impact of single reforms in power sector and pervasive regulatory interventions. Theoretical approaches and empirical studies are discussed with the goal of testing the consistency of theory and practice. Our analysis suggests that direct bene ts of retail competition have been often overstated, particularly for small and residential customers. Final market has proven to be less dynamic than forecast and new entry in supply more di cult to sustain in the medium-long run. Regulatory requirements are demonstrated to be more signi cant than suggested in previous papers, due to non-negligible market imperfections. Our main conclusion is that it seems unlikely that \light-handed regulation" may fully substitute for \hard regulation" in this sector, especially for small and residential customers. Moreover, direct regulatory interventions remain essential for arranging and managing Default and Last Resort services and avoiding the risk of excluding \vulnerable customers" from trade. In the light of this limitations, further actions appear to be required to give a thorough organization to this business able to let expected outcomes of other related reforms (e.g. liberalization of generation) a stronger impact on nal customers' welfare.
    Date: 2013–12–09

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