nep-reg New Economics Papers
on Regulation
Issue of 2017‒03‒26
fourteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Providing Efficient Network Access to Green Power Generators : A Long-term Property Rights Perspective By Petropoulos, G.; Willems, Bert
  2. Technology Choices in the U.S. Electricity Industry before and after Market Restructuring By Zsuzsanna Csereklyei; David I. Stern
  3. On the Heterogeneity of the Economic Value of Electricity Distribution Networks: an Application to Germany By Marius Stankoweit; Markus Groth; Daniela Jacob
  4. Moral Hazard and the Energy Efficiency Gap: Theory and Evidence By Louis-Gaëtan Giraudet; Sébastien Houde; Joseph Maher
  5. An Empirical Analysis of Demand for Mobile Services in Turkey By Hulisi Ögüt; Asunur Cezar; Merve Güven
  6. The Impact of the EU-ETS on the Aviation Sector: Competitive Effects of Abatement Efforts by Airlines. By Nava, Consuelo R.; Meleo, Linda; Cassetta, Ernesto; Morelli, Giovanna
  7. Bertrand Competition under Network Externalities By Masaki Aoyagi;
  8. Energy Paths in the European Union: A Model-Based Clustering Approach By Zsuzsanna Csereklyei; Paul W. Thurner; Johannes Langer; Helmut Küchenhoff
  9. How to Achieve Efficiency in Public Procurement Auctions By Bedri Kamil Onur Tas
  10. Modelling Realized Volatility in Electricity Spot Prices: New insights and Application to the Japanese Electricity Market By Aitor Ciarreta; Peru Muniainy; Ainhoa Zarraga
  11. Renegotiating Public-Private Partnerships By Miranda Sarmento, J.J.; Renneboog, Luc
  12. Assessing water services affordability: macro and micro approaches By Luis Cruz; Luis Cruz; Eduardo Barata; Rita Martins
  13. Subcontracting Requirements and the Cost of Government Procurement By Rosa, Benjamin
  14. Designing performance-based incentives for innovation intermediaries: Evidence from regional innovation poles By Margherita Russo; Annalisa Caloffi; Federica Rossi; Riccardo Righi

  1. By: Petropoulos, G.; Willems, Bert (Tilburg University, Center For Economic Research)
    Abstract: Coordinating the timing of new production facilities is one of the challenges of liberalized power sectors. It is complicated by the presence of transmission bottlenecks, oligopolistic competition and the unknown prospects of low-carbon technologies. We build a model encompassing a late and early investment stage, an existing dirty (brown) and a future clean (green) technology and a single transmission bottleneck, and compare dynamic efficiency of several market designs. Allocating network access on a short-term competitive basis distorts investment decisions, as brown firms will preempt green competitors by investing early. Dynamic efficiency is restored with long-term transmission rights that can be traded on a secondary market. We show that dynamic efficiency does not require the existence of physical rights for accessing the transmission line, but financial rights on receiving the scarcity revenues generated by the transmission line suffice.
    Keywords: network access; congestion management; renewable energy sources; power markets
    JEL: L94 L13 C72 D43
    Date: 2017
  2. By: Zsuzsanna Csereklyei (Crawford School of Public Policy, The Australian National University); David I. Stern
    Abstract: We study the drivers of the adoption of electricity generation technologies between 1970 and 2014 in the lower 48 U.S. states. Since the 1990s, major electricity market restructuring took place in some parts of the United States. We explore the implications of changing from a regulated “cost-of-service” or rate of return system to a partly and fully deregulated market on technology and fuel choices. We find that electricity market deregulation resulted in significant immediate investment in various natural gas technologies, and a reduction in coal investments. However, market deregulation impacted less negatively on high efficiency coal technologies. In states that adopted wholesale electricity markets, high natural gas prices resulted in more investment in coal and renewable technologies.
    JEL: Q40
    Date: 2017–03
  3. By: Marius Stankoweit (Leuphana University Lueneburg, Germany; Climate Service Center Germany (GERICS)); Markus Groth (Leuphana University Lueneburg, Germany; Climate Service Center Germany (GERICS)); Daniela Jacob (LLeuphana University Lueneburg, Germany; Climate Service Center Germany (GERICS))
    Abstract: The reliability of the electricity grid is of vital signicance for the proper functioning of a society and its economy. The aim of this study is to develop a methodology to quantify differences in the electricity distribution grid's economic importance, and investigate limitations from its application to Germany. To this end, the economic value created from electricity consumption is related to the infrastructure installed to generate that economic value. Based on the Value of Lost Load concept, which captures a consumer's willingness to pay for avoided electricity outages, a macroeconomic approach is applied to determine the economic value generated per kWh on the spatial resolution of counties. Each voltage level's grid length is selected as a proxy for the infrastructure installed. Geographic intersections between counties and network operators are exploited to harmonise these data such that both relate to the same reference unit. The results highlight electricity distribution grids of distinct relative economic importance. Especially under consideration of relevant climate risks, the outcomes strengthen the scientic basis for climate services to the energy sector, and can contribute to the design planning of the distribution grid with respect to for example resilience, redundancy, maintenance and retrotting measures.
    Keywords: Blackout costs, Climate Risks, Economic assessment, Electricity distribution networks, Energy transition, Supply Security, Value of lost grid, Value of lost load
    JEL: D61 L94 Q40 Q41 Q54
    Date: 2017–03
  4. By: Louis-Gaëtan Giraudet (ENPC - École des Ponts ParisTech, CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Sébastien Houde (University of Maryland [College Park]); Joseph Maher (University of Maryland [College Park])
    Abstract: We investigate how moral hazard problems can cause sub-optimal investment in energy efficiency, a phenomenon known as the energy efficiency gap. We focus on contexts where both the quality offered by the energy efficiency provider and the behavior of the energy user are imperfectly observable. We first formalize under-provision of quality and compare two policy instruments: energy-savings insurance and minimum quality standards. Both instruments are second-best, for different reasons. Insurance induce over-use of energy, thereby requiring incomplete coverage in equilibrium. Standards incur enforcement costs. We then provide empirical evidence of moral hazard in the U.S. home retrofit market. We find that for those measures, the quality of which is deemed hard to observe, realized energy savings are subject to day-of-the-week effects. Specifically, energy savings are significantly lower when those measures were installed on a Friday—a day particularly prone to negative shocks on workers’ productivity—than on any other weekday. The Friday effect explains 65% of the discrepancy between predicted and realized energy savings, an increasingly documented manifestation of the energy efficiency gap. We finally parameterize a model of the U.S. market for attic insulation and find that the deadweight loss from moral hazard is important over a range of specifications. Minimum quality standards appear more desirable than energy-savings insurance if energy-use externalities remain unpriced.
    Keywords: minimum quality standard, energy-savings insurance, credence good, day-of-the-week effect,Energy efficiency gap, moral hazard
    Date: 2016–12–10
  5. By: Hulisi Ögüt (TOBB University of Economics and Technology); Asunur Cezar; Merve Güven
    Abstract: We investigate the factors influencing the demand for mobile voice services in Turkey using firm level data that spans from January 2009 to December 2013. Competition in the mobile telecommunication market in Turkey has become more intense as a result of the mobile number portability (MNP) service introduced in 2008 and 3G technology introduced in 2009. The intense competition not only helps to keep prices down but also supports subscriber growth. Besides prices, we believe that network effects have an impact on market growth. Approximating sales levels using subscription levels and churn rates and using revenue per minute (RPM) as a price measure, we find that while price has a significant negative impact, network effects have a significant positive impact on the demand for mobile services in Turkey. We also estimate own and cross price elasticities of firms operating in mobile telecommunication market.
    Date: 2015–09
  6. By: Nava, Consuelo R.; Meleo, Linda; Cassetta, Ernesto; Morelli, Giovanna (University of Turin)
    Abstract: In the next few years, it is estimated that the aviation sector will account for more than 15% of total GHG emissions against the current 5%. In order to curb emissions, Directive 101/2008/EC has included the aviation sector within the scope of the European Union Emission Trading Scheme (EU-ETS). The EU-ETS is generating additional costs for airline companies. The present article develops an original model with which to analyse the impact of EU-ETS on the aviation sector's market equilibrium. Our study expands prior research by explicitly allowing for abatement efforts in the cost function of airline companies and by highlighting interactions among strategies to reduce emissions, firm's actions in the secondary market, free allowances, and fines. The results contribute to enhancing policy makers understanding of the impact of the EU-ETS on the aviation sector also in light of its potential global-level extension that is currently under negotiation.
    Date: 2017–03
  7. By: Masaki Aoyagi;
    Abstract: Two firms engage in price competition to attract buyers located on a network. The value of the good of either firm to any buyer depends on the number of neighbors on the network who adopt the same good. When the size of externalities increases linearly with the number of adoptions, we identify the set of price strategies that are consistent with an equilibrium in which one of the firms monopolizes the market. The set includes marginal cost pricing as well as bipartition pricing, which offers discounts to some buyers and charges markups to others. We show that marginal cost pricing fails to be an equilibrium under non-linear externalities but identify conditions for an equilibrium with bipartition pricing to be robust against perturbations in the externalities from linearity. The idea of bipartition pricing is then applied to the analysis of platform competition in a two-sided market under local and approximately linear externalities.
    Date: 2017–03
  8. By: Zsuzsanna Csereklyei (Crawford School of Public Policy, The Australian National University); Paul W. Thurner; Johannes Langer; Helmut Küchenhoff
    Abstract: This paper examines typical “energy paths”, i.e. the intertemporal development of the energy mixes of the member states of the European Union over 1971-2010. We apply model based clustering to detect major energy profiles and their compositional dynamics. The seven identified clusters show typical combinations of energy carriers dominating the primary energy consumption of a country. We find that countries tend to take a path towards higher quality energy mixes over time, however path inertia and dependencies arise from both infrastructure and resource endowments. Higher energy quality profiles are usually associated with higher national income and energy use per capita, supporting some evidence on the existence of a national-level energy ladder. We also find convergence in energy intensity over time, and a relationship between own resources and import dependency.
    Keywords: European Union, energy paths, path dependencies, model based clustering
    JEL: Q40 Q48 O33 C11 C38
    Date: 2017–01
  9. By: Bedri Kamil Onur Tas (TOBB ETU, Department of Economics)
    Abstract: This paper empirically investigates the optimal number of bidders to achieve the lowest procurement prices in public procurement auctions. We use a unique data set provided by the Public Procurement Authority of Turkey that covers all government procurement auctions for the years 2004-2010 (472,560 auctions). We conclude that there is an optimal number of bidders and this number varies for different types of products. These results indicate that auctioneers should promote competition in public procurement. The optimal number of bidders can be used by the authorities as a focal point to analyze whether competitive efficiency is achieved in the public procurement auctions.
    Date: 2015–06
  10. By: Aitor Ciarreta; Peru Muniainy; Ainhoa Zarraga
    Abstract: The paper analyzes volatility of the electricity prices in the Japanese day-ahead market using realized volatility. We use several jump tests to decompose total realized variation into jump and continuous components. Then, we estimate several HAR models that show the time-dependence structure of the volatility. Our results show that even though that market is narrow, it is relevant to identify jumps in volatility. Besides, modelling residuals improve estimation results. The time-dependent structure of the prices is present in volatility as well.
    Date: 2017–02
  11. By: Miranda Sarmento, J.J. (Tilburg University, Center For Economic Research); Renneboog, Luc (Tilburg University, Center For Economic Research)
    Abstract: The renegotiations of public–private partnership (PPP) contracts are commonly considered to be one of the pitfalls of PPPs, as they tend to undermine their (ex ante) efficiency. A renegotiation occurs when specific events change the conditions of a concession, frequently leading to a financial claim from the private sector on the public sector. This paper examines the Portuguese experience with PPP renegotiations by means of a unique panel data of 254 renegotiation events from 1995 to 2012. We find evidence of opportunistic bidding for PPP contracts, which is ex post – after the contract is won and the competition eliminated - leading to renegotiations to increase revenues. Renegotiations last on average 1.8 years. Majority governments are more prone to renegotiate and have more political clout to limit the renegotiation duration. There is no evidence of more renegotiations in election years or when there is a change in government. A better institutional framework, defined as a low country risk, a strong rule of law, and lower corruption, tends to reduce the probability of renegotiations. There is also evidence that at times of higher corruption, more renegotiations occur. The project’s leverage decreases the renegotiation duration. Strong initial bidder competition for a PPP contract leads to long subsequent renegotiations between the winning private party and the government.
    Keywords: publi-private partnerships; concessions; Renegotiations
    JEL: G38 H54 L51
    Date: 2017
  12. By: Luis Cruz; Luis Cruz; Eduardo Barata; Rita Martins
    Abstract: Regulation of water services is increasingly important worldwide. Consumer protection and in particular the promotion of affordable prices is one of the main duties of water regulators, regardless the type of the regulatory regime. However, affordability problems are frequently seen as already solved in developed countries. The purpose of this paper is two-fold. First, contribute to the debate on how much water must be affordable for all by discussing complementary approaches on the affordability concept. Second, using the Portuguese case as an example, and empirically weighting whether residential water charges are affordable for the most vulnerable groups, it intends to assess if water affordability concerns should be reinforced/reoriented. The main rational behind this research relies on the argument that macro affordability only provides a basis for a needed deeper affordability assessment. Indeed, macro affordability analysis gives a general picture on the issue, but a single numeric criterion (based on average figures) can be misleading and therefore the assessment of water services affordability should be complemented with the analysis of micro affordability figures and particularly of the most vulnerable households’ case. Water affordability is often measured as the share of household income spent on water charges (e.g. Garcia Valiñas et al., 2010; Reynaud, 2010). Despite differences in the literature, around 2 to 5%, a 3% threshold affordability ratio (AR) is often considered for water services (Fankhauser and Tepic, 2007; Smets, 2009; Martins et al., 2013). To address the question of the quantities that might be relevant when discussing water affordability, we start by estimating potential or ex-ante macro affordability ratios (AR) for Portuguese mainland municipalities. This procedure provides a range of values, which allows to critically commenting on the suitability of the concepts. The estimation of macro affordability indicators, for 2011, is performed by computing the water bill in each of the Portuguese mainland municipalities, for a hypothetical basic consumption level of 70 liters per capita per day (WHO 2011), for the average household size (hereafter QWHO) , and according to the tariff scheme in charge, with the local average household income. To mitigate potential limitations of the value judgment implicit in the definition of an ‘appropriate’ amount of water, we further estimate the AR considering the charges for two other benchmark household consumption scenarios: 12m3 per month (QERSAR) – the approximate annual average consumption by Portuguese households; and 200m3 per year – 16,6m3 monthly equivalent (QIWA) – often used for international comparisons (e.g., OECD 2010, IWA 2014). In what concerns to these macro AR, data on tariff structures in charge, in 275 (of the 278) Portuguese mainland municipalities, was collected from ERSAR and from water utilities webpages. The average household disposable income was obtained from the Directorate-General for Taxation and the average household size per municipality from the 2011 Census. Next, the analysis is supplemented with the empirical assessment of micro affordability, with household level disaggregated data. As disaggregated household level data is not available, primary data was collected from a household sample of residential users in mainland Portugal by means of a questionnaire-based survey. The random sampling frame was built upon a complete telephone list of customers from 13 water utilities, located in the 5 Portuguese hydrographical regions. 2440 valid questionnaires were obtained. In order to compute observed micro AR, the household survey data on income was matched with actual records (from the water utilities) on the monthly consumption and bills paid by the same customers. Besides the need to go deeper on the assessment of water affordability by confining it to water consumption inelastic levels, in accordance with the satisfaction of essential needs (QWHO), it is particularly relevant to analyze this issue for the most vulnerable groups (Martins et al., 2013a). Indeed, according to the Portuguese Statistical Office (INE), in 2011, almost a quarter of the Portuguese population was at risk of poverty or social exclusion. Accordingly, for the 3 levels of water consumption considered, we estimated the potential AR in each municipality considering the Portuguese poverty threshold (a poverty scenario) income level.The macro AR estimations indicate that water charges do not represent a disproportionate burden. Indeed, the estimated potential macro AR is below the 3% threshold for all municipalities regarding the minor amount of water consumption considered (QWHO). Even considering the water charges for the Portuguese national average consumption (QERSAR) only in 7 municipalities (less than 5% of the Portuguese population) the ratio exceeds the 3%. Regarding the residential international reference equivalent to 16.6(6)m3/month (QIWA) the threshold is exceeded in 56 municipalities. A complementary analysis with real figures (the observed water consumption level and the actual income) at the household level of disaggregation reveal different pictures: the observed average household water consumption is about 9m3 per month; and the affordability threshold is exceeded for an important share of the households’ sample. The analysis for the most vulnerable households reveals that water services’ affordability should be a focus of concern to the public and decision makers. Further, taking into account their spatial distribution throughout the country, it becomes clear that several of the municipalities where the AR for poor households is above the threshold are among the ones with higher average income, thus emphasizing the need to assess beyond averages. To sum up, the water affordability analysis at the macro (potential) level shows that, on average, it does not seem to be an important issue in Portugal. On the contrary, at the micro (observed) level it seems to be a problem for significant shares of the households’ sample. Further, regarding low income households, there are affordability problems in 66 Portuguese municipalities, even when considering low water consumption levels. The proposed integrated analysis, complementing macro and micro approaches, helps to identify who is at risk, revealing that water services’ affordability for poor households should be a focus of concern, also in developed countries, particularly when there are significant income distribution inequalities. Accordingly, the accomplishment of the social sustainability goal requires water services regulation to review and improve current approaches on affordability issues. References Fankhauser, S.; Tepic, S. (2007), Can poor consumers pay for energy and water? An affordability analysis for transition countries. Energy Policy, 35(2), 1038–1049. García-Valiñas, M., Martínez-Espiñeira, R.; González-Gómez, F. (2010), Affordability of residential water tariffs: Alternative measurement and explanatory factors in southern Spain. Journal of Environmental Management, 91(12), 2696–706. IWA (2014), International Statistics for Water Services – Information every water manager should know, International Water Association Publishing. Martins, R.; Cruz, L.; Barata, E.; Quintal, C. (2013), Assessing social concerns in water tariffs. Water Policy, 15(2), 193-211. Martins et al., 2013b OECD (2010), Pricing Water Resources and Water and Sanitation Services. OECD Studies on Water, OECD Publishing. Reynaud, A. (2010), Private Sector Participation, Regulation and Social Policies in Water Supply in France. Oxford Development Studies, 38(2), 219-239. Smets H. (2009), Access to drinking water at an affordable price in developing countries. In: El Mou Jabber, M., Man di, L., Trisorio-Liuzzi, G., Martín, I., Rabi, A., Rodríguez, R. (eds.). Technological perspectives for rational use of water resources in the Mediterranean region. Bari: CIHEAM, 2009. p. 57 -68 (Options Méditerranéennes: Série A. Séminaires Méditerranéens; n. 88) WHO (2011) Technical Notes on Drinking-Water, Sanitation and Hygiene in Emergencies. 9.
    Keywords: Portugal (and Portuguese Municiplities), Sectoral issues, Regional modeling
    Date: 2015–07–01
  13. By: Rosa, Benjamin
    Abstract: Government procurement auctions can be subject to policies that specify, as a percentage of the total project, a subcontracting requirement for the utilization of historically disadvantaged firms. This paper studies how these subcontracting policies affect auction outcomes using administrative data from New Mexico’s Disadvantaged Business Enterprise (DBE) program. Through the use of a procurement auction model with endogenous subcontracting, I show that subcontracting requirements need not correspond to higher procurement costs – even when disadvantaged firms are more costly. I find small differences in procurement costs as a result of New Mexico’s current policy.
    Keywords: Procurement, Subcontracting, DBE Goals
    JEL: D44 H76 R42
    Date: 2016–12–06
  14. By: Margherita Russo (University of Modena and Reggio Emilia); Annalisa Caloffi (University of Padua); Federica Rossi (Birkbeck College, University of London); Riccardo Righi (University of Modena and Reggio Emilia)
    Date: 2016–11

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