nep-reg New Economics Papers
on Regulation
Issue of 2015‒03‒22
eleven papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Investments in Water Networks: A Normative Analysis of Local Public Utilities By Alberto Cavaliere; Mario Maggi; Francesca Stroffolini
  2. Private Politics and Public Regulation By Georgy Egorov; Bård Harstad
  3. ’Make or Buy’ as Competitive Strategy: Evidence from the Spanish Local TV Industry By Christian Ruzzier; Ricard Gil
  4. The impact of energy prices on energy efficiency: Evidence from the UK refrigerator market By François Cohen; Matthieu Glachant; Magnus Söderberg
  5. Alternate solutions in mixing energy tax/subsidy and emission control policies By Shahriar Shah Heydari; Niels Vestergaard
  6. A Greenfield Model to Evaluate Long-Run Power Storage Requirements for High Shares of Renewables By Alexander Zerrahn; Wolf-Peter Schill
  7. Convenience yields and risk premiums in the EU-ETS - Evidence from the Kyoto commitment period By Stefan Trück; Rafal Weron
  8. Comparing the Costs of Vertical Separation, Integration, and Intermediate Organisational Structures in European and East Asian Railways By Fumitoshi Mizutani; Andrew Smith; Chris Nash; Shuji Uranishi
  9. CO2-emissions from Norwegian oil and gas extraction By Gavenas, Ekaterina; Rosendahl, Knut Einar; Skjerpen, Terje
  10. Optimal dynamic procurement contracts with monitoring and lumpy investment By Andreas Asseyer
  11. A Field Experiment on Dynamic Electricity Pricing in Los Alamos:Opt-in Versus Opt-out By Takanori Ida; Wenjie Wang

  1. By: Alberto Cavaliere (Department of Economics and Management, University of Pavia); Mario Maggi (Department of Economics and Management, University of Pavia); Francesca Stroffolini (Universit`a di Napoli, Federico II)
    Abstract: We analyze rehabilitation investments in a regulated water industry with perfectly inelastic demand. We compare alternative organizational solutions for local provision (municipalization, corporatization and privatization), though subject to a common regulatory mechanism. We can then assess the effects of incentive regulation in public firms and find that even benvolent politicians always stick to the price-cap, in order to save on distortionary taxation. How- ever, incentives to invest result to be excessive only in private firms, as the cost of capital is accounted differently by public and private undertakings. We also provide a theory of mixed firms, based on strategic interaction be- tween politicians and managers, which contributes to endogenously explain partial privatization and minority participation by private stockholders. In this last case incentives to invest appear to be driven just by governance and ownership reasons.
    Keywords: price-cap regulation, mixed firms, partial privatization, water networks, inelastic demand, natural monopoly
    JEL: H42 L32
    Date: 2015–03
  2. By: Georgy Egorov; Bård Harstad
    Abstract: Private politics are often introduced by market participants in the absence of public regulation. But when is private politics enough, efficient, or better than administratively costly public regulation? We present a novel framework in which we can study the interaction between regulation, self-regulation by the Örm, and boycotts by the activists in a dynamic game. Our main results are the following. (i) The possibility to self-regulate saves on administrative costs, it therefore also leads to delays. (ii) The possibility to self-regulate benefits activists but harms the firm without the public regulator in place, the reverse is true with the regulator being present in the game. (iii) Without the public regulator, a boycott raises the likelihood of self-regulation, whereas if the regulator is present, it raises the likelihood of public regulation. (iv) Activism is a strategic complement to self-regulation, but a strategic substitute to public regulation. (v) In addition, the analysis generates a rich set of testable predictions regarding the regulatory outcomes and the duration of boycotts.
    Keywords: Private politics, boycotts, war of attrition, activism, regulation, self-regulation, corporate social responsibility (CSR) JEL Classification: D78, L31, L51
    Date: 2015–02–01
  3. By: Christian Ruzzier (Department of Economics, Universidad de San Andres); Ricard Gil (Johns Hopkins Carey Business School)
    Abstract: This paper empirically investigates whether changes in product market competition affect firm boundaries. Exploiting regulation-induced shocks to entry barriers and differences in regulation enforcement across cities to obtain exogenous variation in competition, we establish a negative causal effect of competition (through reduced entry barriers and a larger number of rival firms) on vertical integration in the setting of the Spanish local television industry between 1995 and 2002.
    Keywords: competition, vertical integration, Spanish television
    JEL: D22 L22 L24 L82
    Date: 2015–02
  4. By: François Cohen; Matthieu Glachant; Magnus Söderberg
    Abstract: It is commonly believed that large energy efficiency gaps exist in the energy-using durables markets. We develop a broad analytical framework capturing consumer purchase behavior and suppliers’ pricing and innovation decisions to estimate the effect of household electricity price variations on the refrigerator market outcomes. Using UK product-level panel data from 2002 to 2007, we find that the main factor limiting the full effect of rising price signals on curbing energy consumption of refrigerators is not consumer myopia, but changes in relative prices of products in favor of the less efficient models. We also find that manufacturers strongly respond to rising electricity prices by changing their product portfolio. This suggests shifting policy attention towards suppliers’ pricing and innovation behaviors would be effective in achieving energy efficiency gains in the durables market.
    Date: 2015–01
  5. By: Shahriar Shah Heydari (Department of Environmental and Business Economics, University of Southern Denmark); Niels Vestergaard (Department of Environmental and Business Economics, University of Southern Denmark)
    Abstract: In this article, we look at the combination of several market-based climate and energy policies and compare them with first best solution, i.e., a perfectly designed emission tax or emission cap level. It is shown that in the case an emission control policy is imperfect designed or implemented, its per-formance can be improved by an energy (output) tax/subsidy scheme, where the subsidy is given only to renewable generators or for energy efficiency improvements. This combination can bring the production levels and energy price to the optimum level. The emission level is also decreased by this combination, but not to the optimum level. Thus it may be considered as a second-best policy set. However, other targets on renewables share or energy efficiency level are improved instead, although they are bounded by an optimum level. The policy combination needs to be applied glob-ally to have its best effect and heterogeneous implementation (i.e. different levels of tax/subsidy for various regions) makes welfare loss, but still adding a global emission control policy to a set of ex-isting different local output tax/subsidy policies may be beneficial.
    Keywords: Climate change mitigation, environmental policy, instrument mixes, economic ef-ficiency, environmental taxes and subsidies
    JEL: C61 D60 H21 H23 Q41 Q48
    Date: 2015–03
  6. By: Alexander Zerrahn; Wolf-Peter Schill
    Abstract: We develop a dispatch and investment model to study the role of power storage and other flexibility options in a greenfield setting with high shares of renewables. The model captures multiple system values of power storage related to arbitrage, dispatchable capacity, and reserves. In a baseline scenario, we find that power storage requirements remain moderate up to a renewable share of around 80%, as other options on both the supply side and demand side also offer flexibility at low cost. Yet storage plays an important role in the provision of reserves. If the renewable share increases to 100%, the required capacities of power storage and other technologies increase strongly. As long-run parameter assumptions are highly uncertain, we carry out a range of sensitivity analyses, for example, with respect to the costs and availabilities of storage and renewables. A common finding of these sensitivities is that – under very high renewable shares – the storage requirement strongly depends on the costs and availability of other flexibility options, particularly on biomass availability. We conclude that power storage becomes an increasingly important element of a transition towards a fully renewable-based power system. Power storage gains further relevance if other potential sources of flexibility are less developed. Supporting the development of power storage should thus be considered a useful component of policies designed to safeguard the transition towards renewables.
    Keywords: Power storage, flexibility options, renewable energy, energy transition
    JEL: Q42 Q47 Q48
    Date: 2015
  7. By: Stefan Trück; Rafal Weron
    Abstract: We examine convenience yields in the EU-wide CO2 emissions trading scheme (EU-ETS) during the first Kyoto commitment period (2008-2012). We find that the market has changed from initial backwardation to contango with significantly negative convenience yields in futures contracts. We further examine the impact of interest rate levels in the Eurozone, the increasing level of surplus allowances and banking as well as returns, variance or skewness in the EU-ETS spot market. Our findings suggest that the drop in risk-free rates during and after the financial crisis has impacted on the deviation from the cost-of-carry relationship for Kyoto commitment emission allowances (EUA) futures contracts. Our results also illustrate a negative relationship between convenience yields and the increasing level of inventory during the first Kyoto commitment period providing an explanation for the high negative convenience yields during Phase II. Finally, we find that market participants are willing to pay an additional risk premium in the futures market for a hedge against increased volatility in EUA prices.
    Keywords: CO2 Emissions Trading; Commodity Markets; Spot and Futures Prices; Convenience Yields;
    JEL: G10 G13 Q21 Q28
    Date: 2015
  8. By: Fumitoshi Mizutani (Graduate School of Business Administration, Kobe University); Andrew Smith (Institute for Transport Studies, University of Leeds); Chris Nash (Institute for Transport Studies, University of Leeds); Shuji Uranishi (Graduate School of Economics, Osaka City University)
    Abstract: There is a major policy debate within Europe and more widely on how to structure railway systems to enhance competition, whilst minimising costs. This is the first study in the academic literature to examine, using econometric methods, the cost impacts of three different approaches to structuring railway systems: vertical separation, vertical integration and the intermediate holding company model. Our analysis is based on a panel of European and East Asian railways (1994-2010). We find that the optimal railway structure depends on the intensity and type of traffic running on the network. Our research suggests that, at least on cost grounds, countries should be free to choose between vertical integration, the holding company model or vertical separation.
    Keywords: Vertical Separation, Holding Company, Horizontal Separation, Competition, Railway, Cost
    Date: 2014–11
  9. By: Gavenas, Ekaterina (School of Economics and Business, Norwegian University of Life Sciences); Rosendahl, Knut Einar (School of Economics and Business, Norwegian University of Life Sciences); Skjerpen, Terje (School of Economics and Business, Norwegian University of Life Sciences)
    Abstract: Emissions from oil and gas extraction matter for the lifecycle emissions of fossil fuels, and account for significant shares of domestic emissions in many fossil fuel exporting countries. In this study we investigate empirically the driving forces behind CO2-emission intensities of Norwegian oil and gas extraction, using detailed field-specific data that cover all Norwegian oil and gas activity. We find that emissions per unit extraction increase significantly as a field’s extraction declines. Moreover, emission intensities increase significantly with a field’s share of oil in total oil and gas reserves. We also find some indication that oil and CO2-prices may have influenced emission intensities on the Norwegian continental shelf.
    Keywords: CO2-emissions; Oil and gas extraction; Panel data estimation
    JEL: C23 L71 Q54
    Date: 2015–03–17
  10. By: Andreas Asseyer (Humboldt-Universitaet zu Berlin)
    Abstract: This paper studies optimal contracts and monitoring policies in procurement under dynamic adverse selection and moral hazard concerning a cost-reducing investment decision. I assume fixed costs of investment and show that the resulting 'lumpy' investment behavior creates a motive to monitor information that the supplier learns during the contractual relationship. The principal never monitors both the shock and the investment decision. Furthermore the principal is more likely to prefer to monitor the shock if the level of fixed cost of investment is high. Creation Date: 201502
    Keywords: procurement, lumpy investment, monitoring, dynamic information rents, dynamic contracts, dynamic mechanism design
    JEL: D82 D86 H57
  11. By: Takanori Ida; Wenjie Wang
    Abstract: We use a field experiment to examine how consumers respond to distinct combinations of default options (opt-in versus opt-out) and framing of economic incentives (gain versus loss). A randomized controlled trial (RCT) is implemented to investigate the demand reduction performance of three dynamic electricity pricing programs - opt-in critical peak pricing (CPP, incentive framed as loss), opt-out CPP, and opt-out peak time rebate (PTR, incentive framed as gain). We find that the opt-in customer enrollment rate is much higher than those documented in the literature are; our subjects’ high education levels and technology related experiences may have contributed largely to the mitigation of the opt-in default effect. In addition, we obtain precise estimates of the average treatment effects, with the treatment effect being most pronounced for customers assigned to the opt-in CPP group. This result is largely attributable to the high opt-in CPP enrollment rate and to the customer inertia generated by opt-out procedures. Furthermore, an “option to quit” effect is found among PTR customers. This finding is consistent with a growing behavioral literature highlighting that incentives framed as losses loom larger than those framed as gains.
    Keywords: Field Experiment, Behavioral Economics, Framing, Default Effect, Dynamic Elec- tricity Pricing.
    JEL: C23 C93 D03 Q41
    Date: 2014–09

This nep-reg issue is ©2015 by Natalia Fabra. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.