nep-reg New Economics Papers
on Regulation
Issue of 2017‒08‒20
four papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Free riding and rebates for residential energy efficiency upgrades: A multi-country contingent valuation experiment By Olsthoorn, Mark; Schleich, Joachim; Gassmann, Xavier; Faure, Corinne
  2. Efficiency and dependency in a network of linked permit markets By Itkonen, Juha
  3. Should the most efficient firm invest in its capacity? A value capture approach By Christian Trudeau; Zheng Wang
  4. The health benefits of a targeted cash transfer: the UK Winter Fuel Payment By Crossley, Thomas F.; Zilio, Federico

  1. By: Olsthoorn, Mark; Schleich, Joachim; Gassmann, Xavier; Faure, Corinne
    Abstract: The cost-effectiveness of energy technology upgrade programs critically depends on free riding. This paper assesses ex ante the effects of free riding on the cost-effectiveness of a rebate program that promotes the adoption of energy-efficient heating systems, relying on contingent valuation choice experiments carried out through identical representative surveys in eight EU Members States. The anal-ysis distinguishes between strong and weak free riders: strong free riders already plan to adopt a new heating system in the next five years; weak free riders decide to purchase once propositioned with an attractive technology package (and there-fore do not require a rebate to adopt). The reservation rebates for incentivized adopters (those who decide to adopt because of a rebate) differ substantially across countries. On average, they amount to approximately 40% of the heating system's purchasing price, suggesting generally high opportunity costs for prem-ature upgrades. The reservation rebate and weak free-ridership vary with income, risk and time preferences, and environmental identity. At a rebate level that cor-responds to half the purchase price of the offered heating system, the estimated share of free riders exceeded 50% for most countries, with a typically higher share of weak free riders than strong free riders. Specific rebate cost estimates (in €/tCO2) differ considerably across countries, suggesting that cooperation can yield budgetary benefits.
    Keywords: free rider,subsidies,energy efficiency,contingent valuation
    JEL: Q41 Q48 Q51
    Date: 2017
  2. By: Itkonen, Juha
    Abstract: We model a network of linked permit markets to examine efficiency and dependencies between the markets in a competitive equilibrium. Links enable the participants of one emissions trading system to use the permits of another system. To improve the cost-efficiency of the international policy architecture, the Paris climate agreement set out a framework for linking local policies. International trade in permits reduces costs by merging markets, but in a large network it is generally not obvious which markets end up linked in the equilibrium. Also, indirect links might allow foreign regulators to undermine domestic policy outcomes. We apply graph theory to study dependencies between markets and to determine how the network is partitioned into separate market areas. Our main theorem characterizes the dependency structure of the equilibrium in an exogenous trading network. We show that markets merge when they are connected by a particular pattern of links. The results help to identify potential sources of both cost reductions and foreign interference, and to secure the efficiency of climate change policies.
    JEL: L14 F13 Q54 Q58 D41
    Date: 2017–08–09
  3. By: Christian Trudeau (Department of Economics, University of Windsor); Zheng Wang (Capital University of Business and Economics)
    Abstract: Recently, cooperative game theory and the stand-alone core have been introduced to value capture theory to establish lower and upper bounds on the profits of firms. Where within these bounds firms end up depends on many unobservable factors, including individual bargaining abilities and market-specific practices. Gans and Ryall (2017), in their survey of the recent papers using this theory, provide an example of a matching market in which the firm with the cost advantage might actually be worse off when it decides to expand its capacity to take over the full market. We show that this paradox is extremely persistent and can resist to most extensions of the model, including the presence of additional buyers that were not served originally and economies of scale for the expanding firm. By expanding, the firm now has to attract more consumers, which considerably limits its bargaining power.
    Keywords: Value capture; expansion; bargaining power; core
    JEL: C71 C78 L13 L25 M11
    Date: 2017–08
  4. By: Crossley, Thomas F.; Zilio, Federico
    Abstract: Each year the UK records 25,000 or more excess winter deaths, primarily among the elderly. A key policy response is the “Winter Fuel Payment†(WFP), a labelled but unconditional cash transfer to older households. The WFP has been shown to raise fuel spending among eligible households. We examine the causal effect of the WFP on health outcomes, including self-reports of chest infection, measured hypertension and biomarkers of infection and inflammation. We find a robust and statistically significant six percentage point reduction in the incidence of high levels of serum fibrinogen. Reductions in other disease markers point to health benefits, but the estimated effects are not robustly statistically significant.
    Date: 2017–08–15

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