nep-reg New Economics Papers
on Regulation
Issue of 2014‒12‒29
twelve papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Power System Transformation towards Renewables: An Evaluation of Regulatory Approaches for Network Expansion By Juan Rosellon; Jonas Egerer; Wolf-Peter Schill
  2. Self-Regulation and Regulatory Flexibility: Why Firms May be Reluctant to Signal Green By Thomas P. Lyon; John W. Maxwell
  3. Capacity Payment Mechanisms and Investment Incentives in Restructured Electricity Markets By Brown, David
  4. The Economic Impact of Professional Services Liberalisation By Erik Canton; Daria Ciriaci; Irune Solera
  5. The effect of rent regulations and contract structure on renovation: A theoretical analysis of the Swedish system By Lind, Hans
  6. Estimating the cost of future global energy supply By Narbel, Patrick A.; Hansen, Jan Petter
  7. Do Environmental Policies Matter for Productivity Growth?: Insights from New Cross-Country Measures of Environmental Policies By Silvia Albrizio; Enrico Botta; Tomasz Koźluk; Vera Zipperer
  8. Shifting to a Green Economy: Lock-in, Path Dependence, and Policy Options By Kemp-Benedict, Eric
  9. Race to the top in traffic calming By Proost, Stef; Westin, Jonas
  10. Restructuring the Electricity Industry: Vertical Structure and the Risk of Rent Extraction By Buehler, Stefan; Boom, Anette
  11. Reassessing competition concerns in electronic communications markets By Peitz, Martin; Valletti, Tommaso

  1. By: Juan Rosellon (Division of Economics, CIDE); Jonas Egerer; 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: 2013–10
  2. By: Thomas P. Lyon (Ross School of Business, University of Michigan); John W. Maxwell (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: Corporate self-regulation is a crucial non-market strategy, and has generally been understood as a response to regulatory threats. However, self-regulation can also influence the nature of regulatory threats, especially when firms have private information about their costs of abatement. We study a setting where regulation can potentially be preempted, providing a public good for the whole industry, but where regulators have flexibility in how they enforce regulatory policies, which can provide benefits to particular firms. Strategic management must balance these concerns. We show that firm self-regulatory actions may alter both the form and likelihood of regulation. As a result, firm decisions shape rather than simply respond to the regulatory threat. We characterize when firms are willing to signal their type through substantial self-regulation, and when they prefer to stay in step with the rest of the industry through modest levels of self-regulation.
    Keywords: Self-Regulation, Regulatory Flexibility, Asymmetric Information, Private Governance
    JEL: D83 L31 M14 Q56
    Date: 2014–09
  3. By: Brown, David (University of Alberta, Department of Economics)
    Abstract: I analyze the ability of capacity payment mechanisms to alleviate underinvestment in electricity generation capacity. I derive the optimal capacity payment parameters under two capacity payment mechanisms, when capacity demand is price-elastic and when it is price-inelastic. Price-elastic capacity demand reduces the firms’ abilities to exercise market power, alleviates the bimodal capacity market pricing structure, and reduces the degree of market concentration.Further, at the optimal capacity demand parameters, expected welfare, consumer surplus, and aggregate capacity is higher under the price-elastic demand setting. However, a certain degree of underinvestment in generation capacity persists. These findings support the movement of regulatory policy towards a price-elastic capacity demand regime with market monitoring.
    Keywords: electricity; capacity markets; reliability; market power; regulation
    JEL: D44 L13 L50 L94 Q40
    Date: 2014–12–01
  4. By: Erik Canton; Daria Ciriaci; Irune Solera
    Abstract: Competition in professional services is, in some occasions, hindered by excessive regulation. This may constrain business dynamics (entry and exit of firms) and create inefficiencies and excessive rents. To improve market performance in those professional services generally regulated, several EU countries have reduced regulatory restrictions regarding the entry into and exercise of these professions. This study is an attempt to evaluate the effects of regulatory barriers in four of them, i.e. legal, accounting, architectural and engineering activities in the EU over the period 2008-2011. It is found that less strict regulation improves their allocative efficiency and reduces the observed larger-than-average profitability, through intensified business dynamics.
    JEL: D21 D22
    Date: 2014–09
  5. By: Lind, Hans (Department of Real Estate and Construction Management, Royal Institute of Technology)
    Abstract: The standard view is that rent regulation leads to reduced maintenance as the landlord will be able to find tenants at the regulated rent even if the level of maintenance is low. In this article it is shown that the rent regulation system in Sweden interacts with a contract structure where the rent is allowed to increase only if the standard of the apartment is raised compared to when the apartment was new. Ordinary maintenance is included in the rent, and the rent is therefore not allowed to increase when such maintenance is carried out. It is shown that when there is a housing shortage this system creates economic incentives for increasing the standard of the apartment even if this reduces total welfare. The result can be that quality is increased more than in a market system, and that it can increase gentrification compared to such a system. Policy proposals are also presented.
    Keywords: rent regulation; maintenance; renovation; Sweden; gentrification
    JEL: O18
    Date: 2014–10–27
  6. By: Narbel, Patrick A. (Dept. of Business and Management Science, Norwegian School of Economics); Hansen, Jan Petter (Dept. of Physics and Technology, University of Bergen)
    Abstract: This study produces an attempt to estimate the cost of future global energy supplies. The approach chosen to address this concern relies on a comparative static exercise of estimating the cost of three energy scenarios representing different energy futures. The first scenario, the business as usual scenario, predicts the future energy-mix based on the energy plans held by major countries. The second scenario is the renewable energy scenario, where as much of the primary energy supply as possible is replaced by renewable energy by 2050. The cost of the renewable energy generating technologies and their theoretical potential are taken into account in order to create a plausible scenario. The third scenario, the nuclear case, is based on the use of nuclear and renewable energy to replace fossil-fuels by 2050. Endogenous learning rates for each technology are modeled using an innovative approach where learning rates are diminishing overtime. It results from the analysis that going fully renewable would cost between -0.4 and 1.5% of the global cumulated GDP over the period 2009-2050 compared to a business as usual strategy. An extensive use of nuclear power can greatly reduce this gap in costs.
    Keywords: Primary energy supply; experience curve; scenario
    JEL: Q40 Q42
    Date: 2014–04–14
  7. By: Silvia Albrizio; Enrico Botta; Tomasz Koźluk; Vera Zipperer
    Abstract: Environmental policies address wellbeing and sustainability objectives, affecting firm and household behaviour. A newly developed, cross-country composite proxy of environmental policy stringency (EPS) shows that stringency has been increasing across OECD countries over the past two decades. However, the tightening environmental policies have had little effect on aggregate productivity, spurring primarily short-term adjustments. Nevertheless, they have led to various effects within the economy - the most technologically advanced industries and firms have seen a small increase in productivity, possibly being in the best position to adapt. Least productive firms have seen their productivity fall. Part of the effect is likely to have taken place through entry and exit of firms and relocation of activities. Finally, this project provides evidence on the anti-competitive bias of some aspects of environmental policies. The indicator of Burdens on the Economy due to Environmental Policies (BEEP) shows that barriers to entry and competition, and the consideration given to economic effects of environmental policies vary notably across countries, but that this variation is not related to the stringency of policies. Hence, to support both economic and environmental outcomes, stringent environmental policies can and should be implemented with minimum barriers to entry and competition.<P>Les politiques environnementales influent-elles sur la croissance de la productivité ? : Enseignements tirés de nouvelles mesures des politiques environnementales nationales<BR>Les politiques environnementales sont axées sur des objectifs de bien-être et de durabilité, et influent sur le comportement des entreprises et des ménages. Un indice composite de rigueur des politiques environnementales, de couverture internationale, élaboré récemment montre que la rigueur de ces politiques s'est accentuée dans les pays de l'OCDE au cours des deux dernières décennies. Ce durcissement des politiques environnementales a cependant eu peu d'effets sur la productivité globale, entraînant essentiellement des ajustements à court terme. Néanmoins, cela a eu diverses répercussions dans les économies : les secteurs et les entreprises les plus avancés sur le plan technologique ont vu leur productivité progresser légèrement, peut-être parce qu'ils étaient les mieux placés pour s'adapter. À l'inverse, les entreprise dont la productivité était la plus faible ont vu celle-ci diminuer. Ces effets sont sans doute en partie liés à des entrées et sorties d'entreprises ainsi qu'à des transferts d'activités. Enfin, le projet fournit des éléments d'information sur les aspects anticoncurrentiels de la conception des politiques environnementales. L'indicateur de la charge imposée à l'économie par les politiques environnementales montre que ces obstacles varient sensiblement d'un pays à l'autre, mais que cette variation n'est pas liée à la rigueur des politiques. Par conséquent, pour favoriser la réalisation des objectifs visés tant sur le plan économique qu'écologique, il est possible et souhaitable d'appliquer des politiques environnementales rigoureuses tout en réduisant au minimum les obstacles à l'entrée préjudiciables à la concurrence qui en découlent.
    Keywords: multifactor productivity, environmental regulations, anti-competitive regulation, environmental policies, barriers to entry, politiques environnementales, productivité multifactorielle, obstacles à l'entrée, réglementation anticoncurrentielle, réglementation environnementale
    JEL: O47 Q50 Q58
    Date: 2014–12–03
  8. By: Kemp-Benedict, Eric
    Abstract: In the face of increasingly likely dangerous climate change, many developing countries are designing green economy or low-emissions development strategies, but are simultaneously on a course of investment locking them into high-emission infrastructure. Meanwhile, many high-income countries are working to reduce their emissions but are hampered by the cost of switching from an existing capital stock designed for a fossil fuel-based economy. This paper looks at economic aspects of the challenge of escaping carbon lock-in using a “brown-green capital” model. In the model, brown capital is more productive than green capital in a brown capital-dominated economy, while green capital is more productive in a green capital-dominated economy; that is, the model allows for “carbon lock-out”. We explore possible macroeconomic consequences of policies to drive a transition to a low-carbon economy and policy responses in the case that macroeconomic imbalances result. Three results are particularly interesting. First, the effect of policy instruments depends on whether the economy is wage-led or profitled, a distinction that emerges from post-Keynesian theory. Second, if investors hedge against uncertainty over expected levels of green and brown investment, then there is likely to be underinvestment in green capital even at quite high levels of green capital penetration, creating a substantial challenge for policymakers. Third, the model suggests an unusual role for a carbon price, to control inflationary pressure arising from public green capital investment, in addition to its usual role of encouraging emissions reductions at the margin.
    Keywords: green economy; brown-green capital; carbon lock-in; post-Keynesian; Kaleckian
    JEL: E12 E61 G11 Q01
    Date: 2014–11–25
  9. By: Proost, Stef (Katholieke Universiteit Leuven); Westin, Jonas (Centre for Regional Science, Umeå University)
    Abstract: We study the competition of two suburbs that are facing transit traffic flows. We show that in the absence of toll measures, the Nash equilibrium leads to a race to the top in traffic calming, except for the measures that do not affect the generalized cost of traffic. The Nash equilibrium is compared to two types of centralized decisions: the symmetric solution and the asymmetric solution. It is shown how the asymmetric solution that concentrates all transit traffic in one suburb is better but can only be realized if the authority over the local roads is transferred to the central authority.
    Keywords: Transport; Externalities; Traffic calming; Multi-level government; Regulation
    JEL: H23 H77 Q58 R41 R48
    Date: 2014–12–02
  10. By: Buehler, Stefan; Boom, Anette
    Abstract: We study the role of vertical structure in determining generating capacities and retail prices in the electricity industry. Allowing for uncertain demand, we compare three market configurations: (i) integrated monopoly, (ii) integrated duopoly with wholesale trade, and (iii) separated duopoly with wholesale trade. We find that equilibrium capacities and retail prices are such that welfare is highest (lowest) under separated (integrated) duopoly. The driving force behind this result is the risk of rent extraction faced by competing integrated generators on the wholesale market. Our analysis suggests that vertical structure plays an important role in determining generating capacities and retail prices.
    Keywords: Electricity, Investments, Generating Capacities, Vertical Integration, Monopoly and Competition
    JEL: D42 D43 D44 L11 L12 L13
    Date: 2014–12
  11. By: Peitz, Martin; Valletti, Tommaso
    Abstract: Central features of today's electronic communications markets are complementarities between the different layers of the value chain, substitutability between some applications, network effects in the provision of content and services, two-sided business models that partly involve indirect revenue generation (such as advertising and data profiling), and a patchwork of regulated and unregulated segments of the market. This complexity requires a fresh look at the market forces shaping the industry and a rethinking of market definitions and of the assessment of market power. This article presents the state of play in European electronic communication markets, with a particular emphasis on the recent development of 'over the tops'. We also use a stylised model of an electronic communications market to draw some central lessons from economic theory and to elaborate on market definition and market power.
    Keywords: telecommunications,OTT,relevant market,two-sided markets,market power
    JEL: D82 L13 L41 L51 L86 L96
    Date: 2014
  12. By: Slobodan Cvetanović , Miljan Jovanović (University of Niš, Faculty of Economics)
    Abstract: The increasing renewable source usage and energy efficiency enhancement represent the key aims of the energy sector's development in EU countries. The purpose of their implementation is at the same time the creation of the renewable sources concept as a new development paradigm.Thus, this points to the conclusion that all the projects of renewable source usage and energy efficiency enhancement must be viewed from the perspective of the manifestation of economic, environmental and social effects.Having these facts in mind the paper considers the place of renewable sources and energy efficiency in the energy policy of the EU. The analysis is primarily based on examination of the solutions that are defined in the directives of the European Commission that deal with renewable sources and energy efficiency.
    Keywords: European Union, energy policy, renewable energy sources, energy efficiency
    JEL: Q40 Q42 Q48
    Date: 2014–04

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