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on Regulation |
| By: | Carlo Cambini; Sara De Masi; Laura Rondi |
| Abstract: | This paper examines the relationship between CEO pay and firm performance within a sample of European publicly listed energy utilities from 2000 to 2010, focusing on the differential responses that arise from being subject to different regulatory regimes. In particular, we investigate the difference in pay-performance sensitivity across regulated and unregulated firms as well as the impact of different regulatory schemes – incentive vs. cost-based regulation - on CEO monetary incentives. Using various measures of performance, we find that European energy utilities link CEO compensation to firm performance, but CEO pay-performance is higher for unregulated companies. When we focus on the effect of alternative regulatory schemes, our results show that payperformance sensitivity is significantly higher for firms under incentive regulation than within firms under cost-based regulation. This result holds after controlling for firm - private vs. state - ownership and for varying degrees of market liberalization across countries. |
| Keywords: | Managerial compensation, Incentive contracts, Incentive regulation, Energy utilities |
| JEL: | G30 J33 L51 M12 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bcu:iefewp:iefewp58&r=reg |
| By: | Ben Dkhil, Inès |
| Abstract: | Since the USA Telecommunications Act of 1996, the regulatory frameworks, have led to the requirement of different policy practices in many countries across the world in order to establish sustainable competition in whole telecommunication markets. These regulatory reforms are the privatization of the telecom historical integrated monopoly (the incumbent), the independency of the regulatory authority, the obligation of transparency of the access price and agreements & the unbundling, the separation and the access pricing policies. This paper suggests an empirical investigation on both the individual, and the global impacts of these different regulatory policy practices on broadband deployment. To this end, we construct a panel data covering 107 developed and developing countries over the period of eight years from 2004 to 2011. Using the Instrumental variables (IV) & the Generalized Method of Moments (GMM) with fixed effects and robust to heteroskedastic and autocorrelated errors, we show that the relationship between regulation and broadband investment is an inverted U shape in developed world while it takes a U form in developing countries. This means that in developed countries, a less restrictive regulatory policy spurs broadband deployment while more stringent policy discourages innovation in telecom industry. However, in the developing countries, the regulation has a strict negative impact on broadband deployment. |
| Keywords: | developed and developing countries, regulation, fixed broadband deployment, separation, unbundling, access pricing. |
| JEL: | C51 L59 L96 |
| Date: | 2014–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:59337&r=reg |
| By: | Devine, Mel; Farrell, Niall; Lee, William |
| Abstract: | Feed-in Tariffs (FiTs) incentivise the deployment of renewable energy technologies by subsidising remuneration and transferring market price risk from investors, through policymakers, to a counterparty. This counterparty is often the electricity consumer. Different FiT structures exist, with each transferring market price risk to varying degrees. Explicit consideration of policymaker/consumer risk burden has not been incorporated in FiT analyses to date. Using Stackelberg game theory and option pricing, we define FiT policies that efficiently divide market price risk, conditional on risk preferences and market conditions. We find that commonly employed flat-rate FiTs are optimal when policymaker risk aversion is extremely low whilst constant premium policies are optimal when investor risk aversion is extremely low. This suggests that if investors are considerably risk averse, the additional remuneration offered to incentivise deployment under a constant premium regime may be sub-optimal. Similarly, flat-rate FiTs are sub-optimal if policymakers are considerably risk averse. When both policymakers and investors are considerably risk averse, an intermediate division of risk is optimal. We find that investor preferences are more influential than those of the policymaker when degrees of risk aversion are of a similar magnitude. Efficient division of risk is of increasing importance as renewables comprise a greater share of total electricity cost. Different divisions of market price risk may thus be optimal at different stages of renewables deployment. Flexibility in FiT legislation may be required to accommodate this |
| Keywords: | Renewable Energy, Feed-in Tariff, Option Pricing, Renewable Support Schemes, Market Price Risk |
| JEL: | C63 C7 Q4 Q42 Q58 |
| Date: | 2014–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:59208&r=reg |
| By: | Frédéric Branger (CIRED and AgroParistech ENGREF (France)); Philippe Quirion (CIRED and CNRS (France)) |
| Abstract: | We analyse variations of carbon emissions in the European cement industry from 1990 to 2011, at the European level (EU 27), and at the national level for six major producers (Germany, France, Spain, United Kingdom, Italy and Poland). We apply a Log-Mean Divisia Index (LMDI) method, crossing data from three databases: the Getting the Numbers Right (GNR) database developed by the Cement Sustainability Initiative, the European Union Transaction Log (EUTL), and the Eurostat International Trade database. Our decomposition method allows disentangling seven channels of emissions change: activity, clinker trade, clinker share, alternative fuels, thermal and electric energy efficiency, and electricity decarbonisation. We find that, apart from a slow trend of emissions reductions coming from technological improvements (first from a decrease in the clinker share, then from an increase in alternative fuels), most of the emissions changes can be attributed to the activity effect. Using counterfactual scenarios, we estimate that the introduction of the EU ETS brought small but positive technological abatement (2.0% ± 1.1% between 2005 and 2011). Moreover, we find that the European cement industry have ained 3.5 billion euros of “overallocation profits”, mostly due to the slowdown of production. Based on these findings, we advocate for output-based allocations, based on a stringent hybrid clinker and cement benchmarking. |
| Keywords: | Cement Industry, LMDI, EU ETS, Abatement, Overallocation, Windfall Profits, Overallocation Profits, Carbon Emissions, Energy Efficiency |
| JEL: | Q4 Q48 Q55 |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2014.77&r=reg |
| By: | Victoria Shestalova; Chiara Criscuolo; Nick Johnstone; Carlo Menon |
| Abstract: | This study assesses the role of feed-in tariffs (FITs) and renewable energy certificates (RECs) in creating incentives for cross-border investments and for investments in particular technological portfolios via M&A. The analysis explores the dataset on M&As in alternative energy sources worldwide over 2005‑2011. The results suggests that FITs encourage more diversified M&A than RECs. With respect to foreign investment, the study finds a linear relationship between FITs and cross-border M&As in the wind energy sector, but an inverted U-shaped relationship in the solar energy sector. One possible explanation for the latter may lie in reduced policy credibility due to the public finance implications of ‘generous’ FITs. Another possible explanation for this finding concerns the use of high solar FITs by countries whose natural conditions provide little comparative advantage in solar energy, suggesting that low profitability and limited potential of solar energy in those countries might have deterred the entry of foreign investors. |
| JEL: | G34 Q42 Q48 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:288&r=reg |
| By: | Giovanni Immordino; Michele Polo |
| Abstract: | In this paper we review some recent work on public intervention in economic environments where firms undertake investments in research or in physical assets, and then select appropriate business practices to extract profits from the outcomes of the investment process. Public policies may take different forms: the release of an authorization; the setting of fines and damages for liability; or the choice of legal standards in antitrust law enforcement. The business practices are privately profitable but may be welfare enhancing or socially harmful. When expectations are optimistic, public policies face a trade-off between ex-ante effects on investment, that suggest hands off, and ex-post control of practices when harmful, that requires intervention. Our general result suggests that public policies should be softer when innovation is an important source of welfare improvements. |
| Keywords: | Regulation, Antitrust, Legal Standards |
| JEL: | D73 K21 K42 L51 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:bcu:iefewp:iefewp59&r=reg |
| By: | Camila Casas |
| Abstract: | In this paper, I estimate the demand for housing in Bogotá, modeling electricity consumption explicitly to take into account the crossed subsidies included in Colombian utility rates. I use household level data on housing prices, observable dwelling attributes, and demographic variables to recover the willingness to pay for housing characteristics following the three-step estimation procedure suggested by Bajari and Kahn (2005). First, I regress the price of housing against different observable dwelling characteristics to recover the implicit price of each feature. Next, I infer household-specific preference parameters from the utility maximizing first-order conditions, where a household’s utility depends on these observable characteristics. Finally, I analyze the relationship between demographic variables and the taste parameters estimated in the previous step. In order to study the impact of subsidies on households’ housing decisions, I focus on the impact of changes in the price of electricity on the choice of dwelling size. I find that subsidized households choose bigger dwellings than they would in the absence of subsidies, while those who are taxed choose smaller ones. |
| Keywords: | Housing Demand, Hedonic Prices, Subsidies, Stratification. |
| JEL: | H2 H4 I3 R21 |
| Date: | 2014–10–09 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:012230&r=reg |
| By: | Ginés de Rus |
| Abstract: | Infrastructure investment is an inter-temporal decision through which society foregoes its current wellbeing for the future. In the economic assessment of this trade-off, the practical standard method is cost-benefit analysis, which compares the social benefits and costs of the decision. Furthermore, a sound exercise of economic evaluation requires an approach that incorporates other unavoidable trade-offs related to pricing, such as charging short-run vs long-run marginal cost or the consequences of budget constraints on the net social value of the investment; intermodal competition and public investment; institutional design and the choice of contracts; and in a particularly important but somewhat neglected point, the long-term consequences of investment decisions. This paper addresses the economic content of this set of essential trade-offs and discusses their inclusion in the economic evaluation of major projects. |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:fda:fdaddt:2014-16&r=reg |
| By: | Jussila Hammes , Johanna (VTI) |
| Abstract: | European Union’s (EU) energy legislation from 2009 is still being implemented in the Member States. We study analytically the Renewable Energy Directive and the Fuel Quality Directive’s provisions for the transport sector. The former Directive imposes a biofuel mandate and allows double counting of some biofuels. The latter Directive imposes a Low Carbon Fuel Standard (LCFS). We show that either the biofuel mandate or the LCFS is redundant. Double counting makes the biofuel mandate easier to fulfil but also depresses the price of biofuels. Production of the doubly counted biofuels increases nevertheless and production of the single-counted biofuels falls. Given the type of technical change studied, double counting spurs technical development of the doubly counted biofuels. The LCFS directs support towards those biofuels with lowest life-cycle carbon emissions. The redundant policy instrument, the biofuel mandate or the LCFS, only creates costs but no benefits and should be abolished. Double counting makes the biofuel mandate non-cost-efficient and should be reconsidered. |
| Keywords: | Biofuel mandate; Low carbon fuel standard; Double counting; Technical change; European energy legislation |
| JEL: | D61 H21 H23 |
| Date: | 2014–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ctswps:2014_019&r=reg |
| By: | Adriaan Hendrik van der Weijde (VU University Amsterdam) |
| Abstract: | This paper analyzes the effects of price differentiation and discrimination by a monopolistic transport operator, which sets fares in a congestible network. Using three models, with different spatial structures, we describe the operator’s optimal strategies in an unregulated market, a market where price differentiation is not allowed (i.e., ticket prices must be the same for all users), and a market where price discrimination is illegal (i.e., ticket prices must only differ with the marginal external costs of users), and analyze the welfare effects of uniform and non-discriminatory pricing policies. The three models allow us to consider three different forms of price differentiation and discrimination in networks: by user class, by origin-destination pair, and by route. We generalize the existing literature, in which groups usually only differ in their value of time, and hence, there is no distinction between differentiation and discrimination. In our models, users may also have different marginal external costs; we show how these two differences interact. We also show how non-differentiated and non-discriminatory policies may increase or decrease welfare, and that non-discrimination can be worse than non-differentiation. The network models show that results obtained for a single-link network can be generalized to a situation where operators price-discriminate or differentiate based on users’ origins and destinations, but not directly to a situation in which differentiation is based on route choices. |
| Keywords: | price differentiation, price discrimination, transport, networks, congestion |
| JEL: | L11 L51 L91 |
| Date: | 2014–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20140099&r=reg |
| By: | Surender Kumar (Department of Business Economics, University of Delhi); Hidemichi Fujii (Faculty of Environmental Studies, Nagasaki University); Shunsuke Managi (Graduate School of Environmental Studies, Tohoku University) |
| Keywords: | Fossil fuels, Renewable energy, Morishima elasticity of substitution, Directional distance function, shadow price of CO2, OECD countries |
| JEL: | L60 Q20 Q42 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:kch:wpaper:sdes-2014-8&r=reg |
| By: | Xiao, Jingjie; Liu, Andrew; Pekny, Joseph |
| Abstract: | Retail electricity rates have been kept flat for the past century due to the lack of advanced metering technology and infrastructure. The flat-rate structure prevents consumers from responding to the fluctuation of actual costs of electricity generation, which varies hourly (or even minute-by-minute). The absence of demand response leads to an electricity system that is overly built with costly assets, solely to maintain system reliability. One of the core visions of the future electricity system, referred to as Smart Grid, is to use advanced metering infrastructure (AMI) and information technology to enable dynamic electricity rates. The main goal of this paper is to present an approximate dynamic programming (ADP) based modeling and algorithm framework that can make home energy management systems capable of optimally managing the appliance usage using the information of anticipated whole electricity prices. The other goal of the paper is to use the modeling framework to provide numerical evidence to the debate that if dynamic rate structure is superior than the current flat rate structure in terms of reducing peak demand and overall electricity costs. |
| Keywords: | Electricity Markets, Electricity Pricing, Demand side management, dynamic programming |
| JEL: | C6 C61 Q41 Q47 Q48 |
| Date: | 2012–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:58781&r=reg |
| By: | Thomas Dietz (University of Muenster - Institute of Political Science & ZenTra); Jennie Auffenberg (University of Bremen - Institute for Commercial Law & ZenTra) |
| Abstract: | What are the conditions under which private, voluntary certification programs like the Rainforest Alliance or Fairtrade can successfully promote environmental and social standards? We propose that the efficacy of a certification program depends on three variables: its sustainability standards, enforcement mechanisms and its market proliferation. The stricter the standards, the better the enforcement systems and the bigger the market share, the higher will be the factual impact of a particular certification program. We develop an index to systematically compare the strengths of norms and enforcement systems across a selection of important certification schemes in the global coffee industry and collect data about their market shares. We use a qualitative comparative analysis (QCA) to analyze these data. Our results show: certification schemes with strict standards and enforcement systems possess only insignificant market shares. Certification schemes with more significant market shares have either loose standards and/or ineffective enforcement systems. We develop a governance costs approach to explain these findings. Stricter standards and enforcement systems lead to an increase of production costs. The extents to which these costs can be shifted to the market are limited. Certification schemes therefore have incentives to reduce these costs in order to increase their market shares. The results confirm that the capacity of voluntary governance schemes is systematically restricted. |
| Keywords: | corporate social responsibility, sustainability, global value chains, transnational regulation, qualitative comparative analysis |
| JEL: | J50 K33 L51 M14 Q20 |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:zen:wpaper:39&r=reg |
| By: | David Newbery; Michael Grubb |
| Abstract: | The UK Government has developed a carefully designed Capacity Mechanism to ensure security of supply in the GB electricity system. This paper criticises the methods used to determine the amount of capacity to procure, and argues that the amount finally proposed is likely to be excessive, particularly (but not exclusively) in ignoring the contribution from interconnectors. More broadly, there has been too little attention to either the political economy, or the option value aspects. Procuring too little is risky, but fear of'the lights going out' can easily become a catch-all argument for excessive procurement, and associated subsidy. The risk of over-procurement, particularly of new capacity on long-term contracts, is that it drives up the costs to consumers; undermines renewable energy by transferring capped resources from renewable to fossil fuel producers; and impedes the Single Market including by weakening the business case for future interconnectors. The paper argues that the development of technologies and markets, particularly on the demand- side and of potentially available – 'latent' – capacity - further lowers the risks and increases options. This implies greater potential to defer more capacity procurement – and enhances the value of a more appropriate treatment of interconnectors in security assessments. |
| Keywords: | Capacity Mechanisms, procurement volume, interconnectors |
| Date: | 2014–10–03 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1433&r=reg |
| By: | Ranson, Matthew (Abt Associates Inc); Stavins, Robert N. (Harvard University) |
| Abstract: | The last ten years have seen the growth of linkages between many of the world's cap-and-trade systems for greenhouse gases (GHGs), both directly between systems, and indirectly via connections to credit systems such as the Clean Development Mechanism. If nations have tried to act in their own self-interest, this proliferation of linkages implies that for many nations, the expected benefits of linkage outweighed expected costs. In this paper, we draw on the past decade of experience with carbon markets to test a series of hypotheses about why systems have demonstrated this revealed preference for linking. Linkage is a multi-faceted policy decision that can be used by political jurisdictions to achieve a variety of objectives, and we find evidence that many economic, political, and strategic factors--ranging from geographic proximity to integrity of emissions reductions--influence the decision to link. We also identify some potentially important effects of linkage, such as loss of control over domestic carbon policies, which do not appear to have deterred real-world decisions to link. These findings have implications for the future role that decentralized linkages may play in international climate policy architecture. The Kyoto Protocol has entered what is probably its final commitment period, covering only a small fraction of global GHG emissions. Under the Durban Platform for Enhanced Action, negotiators may now gravitate toward a hybrid system, combining top-down elements for establishing targets with bottom-up elements of pledge-and-review tied to national policies and actions. The incentives for linking these national policies are likely to continue to produce direct connections among regional, national, and sub-national cap-and-trade systems. The growing network of decentralized, direct linkages among these systems may turn out to be a key part of a future hybrid climate policy architecture. |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:harjfk:rwp14-012&r=reg |