nep-reg New Economics Papers
on Regulation
Issue of 2017‒09‒17
seven papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Rail freight development in Europe: how to deal with a doubly-imperfect competition? By Yves Crozet
  2. Expansion of photovoltaic technology (PV) as a solution for water energy nexus in rural areas of Iran: Comparative case study between Germany and Iran By von Heyking, Carl-Anton; Jaghdani, Tinoush Jamali
  3. The Safe Carbon Budget By Frederick van der Ploeg
  4. The Revolution of Information Economics: The Past and the Future By Joseph E. Stiglitz
  5. The Value of Transparency in Dynamic Contracting with Entry By Gülen Karakoç; Marco Pagnozzi; Salvatore Piccolo
  6. Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol? By Christiane Baumeister; Reinhard Ellwanger; Lutz Kilian
  7. Implementing Flexible Demand: Real-time Price vs. Market Integration By Florian K\"uhnlenz; Pedro H. J. Nardelli; Santtu Karhinen; Rauli Svento

  1. By: Yves Crozet (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - École Nationale des Travaux Publics de l'État [ENTPE] - CNRS - Centre National de la Recherche Scientifique, IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon)
    Abstract: The development of rail freight is central to the European Union's transportation policy. As it has been the case for road and air transport and for other network industries (e.g. energy and telecommunications), deregulation and market opening have been the main policy options chosen by EU to promote rail freight. But rail freight is still facing a doubly-imperfect competition. On one hand, the intermodal competition is off balance between road and rail. On the other hand, intra-modal competition between railway operators is imperfect. Railway operators are not all alike, major companies exist and they play a structuring role that regulation must take into account. According to the HHI (Hirschman Herfindahl Index) the market structure is still characterised by a strong concentration. Therefore, the key roles played by the major companies as well as, in some countries, the remaining action of the state, have to be addressed, since both of them represent some of the key features of imperfect competition in the rail sector. Numerous entry barriers remain and market power manifest itself in many areas of rail freight. This should be given special attention by regulators or competition authorities. National regulators should also communicate with one another, as they will be confronted with major companies’ market power.
    Keywords: Barriers to enrry,Competition,Concentation index,EU,Liberalisation,Road freight,Rail freight,Regulation
    Date: 2016–07–10
  2. By: von Heyking, Carl-Anton; Jaghdani, Tinoush Jamali
    Abstract: Iran is suffering from groundwater resources depletion through the excessive subsidized electricity for water pumping and the resulting disproportionate water consumption in agriculture. The creation of an alternative income sources for farmers and elimination of heavy subsidies for groundwater pumping simultaneously is a possible option for dealing with this threat. By expanding photovoltaic technology (PV) in rural areas, farmers can have an alternative source of income by supply and sale of renewable energy through feed-in tariff (FiT) mechanism. The latest decision of the Ministry of Energy in Iran in 2016 for purchasing electricity which is generated by low capacity PV owners can be a solution for the above mentioned problem. This study undertakes a comparison between Germany and Iran of the development of decentralized power system and PV expansion by private owners. In direct comparison to Germany, Iran has a far higher solar radiation and significant potential for the generation of electricity through PVs. This study illuminates both countries' costs of conventional/renewable electricity power, their changing FiT's for renewable power and the renewable energy laws. Comparing the price development shows that a lucrative business arises by selling electricity for the Iranian owners of PV whereas in Germany the trend of self-consumption is clearly preferred. Innovative policies are needed to tackle infrastructural and economic challenges to exploit this potential in Iran.
    Keywords: Iran,Germany,photovoltaic technology (PV),groundwater depletion,electricity subsidy,feedintariff (FiT),decentralized power system,renewable energy laws
    Date: 2017
  3. By: Frederick van der Ploeg
    Abstract: Cumulative emissions drive peak global warming and determine the safe carbon budget compatible with staying below 2oC or 1.5oC. The safe carbon budget is lower if uncertainty about the transient climate response is high and risk tolerance low. Together with energy costs this budget determines the constrained welfare-maximizing carbon price and how quickly fossil fuel is replaced by renewable energy and how much of it is abated. This price is the sum of a gradual damages component familiar from the unconstrained optimal carbon price highlighted in economic studies and a Hotelling component for the additional price needed to ensure that the safe carbon budget is never violated familiar from IAM studies. If policy makers ignore damages, as in the cost-minimizing temperature constraint literature, a more rapidly rising carbon price results. The alternative of adjusting damages upwards to factor in the peak warming constraint leads initially to a higher carbon price which rises less rapidly.
    Keywords: peak warming target, climate uncertainty, risk tolerance, Pigouvian damamges, Hotelling rule, carbon price
    Date: 2017
  4. By: Joseph E. Stiglitz
    Abstract: The economics of information has constituted a revolution in economics, providing explanations of phenomena that previously had been unexplained and upsetting longstanding presumptions, including that of market efficiency, with profound implications for economic policy. Information failures are associated with numerous other market failures, including incomplete risk markets, imperfect capital markets, and imperfections in competition, enhancing opportunities for rent seeking and exploitation. This paper puts into perspective nearly a half century of research, including recent advances in understanding the implications of imperfect information for financial market regulation, macro-stability, inequality, and public and corporate governance; and in recognizing the endogeneity of information imperfections. It explores the consequences of recent advances in technology and the policy challenges and opportunities they present for competition policy and policies regarding privacy and transparency. The paper notes the role that information economics played in stimulating other advances in economics, including contract theory and behavioral economics. It reinvigorated institutional economics, showing how institutions mattered, in some cases explaining institutional features that could not be well-understood in the conventional paradigm, and in others showing how institutional responses to market failures might or might not be welfare enhancing. The paper argues that the new paradigm provides a markedly different, and better, lens for looking at the economy than the older perfect markets competitive paradigm.
    JEL: B21 D82 D83
    Date: 2017–09
  5. By: Gülen Karakoç (Università di Milano Bicocca); Marco Pagnozzi (Università di Napoli Federico II and CSEF); Salvatore Piccolo (Università di Bergamo and CSEF)
    Abstract: A manufacturer designs a dynamic contract with a retailer who is privately informed about demand and faces competition by an integrated entrant in a second period. Since the entrant only observes demand after entry and demand is correlated across periods, information about past demand affects the entrant’s production. We analyze the incentives of the incumbent players to share information with the entrant and show that the retailer benefits from transparency, but the manufacturer does not. Contrary to what intuition suggests, transparency with an integrated entrant harms consumers. When the entrant is not an integrated firm, whether transparency benefits consumers depends on the degree of demand persistency.
    Keywords: Dynamic Adverse Selection, Entry, Information Sharing, Transparency, Vertical Contracting
    JEL: D40 D82 D83 L11
    Date: 2017–09–02
  6. By: Christiane Baumeister; Reinhard Ellwanger; Lutz Kilian
    Abstract: It is commonly believed that the response of the price of corn ethanol (and hence of the price of corn) to shifts in biofuel policies operates in part through market expectations and shifts in storage demand, yet to date it has proved difficult to measure these expectations and to empirically evaluate this view. We utilize a recently proposed methodology to estimate the market’s expectations of the prices of ethanol, unfinished motor gasoline and crude oil at horizons from three months to one year. We quantify the extent to which price changes were anticipated by the market, the extent to which they were unanticipated, and how the risk premium in these markets has evolved. We show that the Renewable Fuel Standard (RFS) is likely to have increased ethanol price expectations by as much as $1.50 in the year before and in the year after the implementation of the RFS had started. Our analysis of the term structure of expectations supports the view that a shift in ethanol storage demand starting in 2005 caused an increase in the price of ethanol. There is no conclusive evidence that the tightening of the RFS in 2008 shifted market expectations, but our analysis suggests that policy uncertainty about how to deal with the blend wall raised the risk premium in the ethanol futures market in mid-2013 by as much as 50 cents at longer horizons. Finally, we present evidence against a tight link from ethanol price expectations to corn price expectations and hence to storage demand for corn in 2005-06.
    Keywords: Econometric and statistical methods, Financial markets, Recent economic and financial developments
    JEL: Q18 Q28 Q42 Q58
    Date: 2017
  7. By: Florian K\"uhnlenz; Pedro H. J. Nardelli; Santtu Karhinen; Rauli Svento
    Abstract: This paper proposes an agent-based model that combines both spot and balancing electricity markets. From this model, we develop a multi-agent simulation to study the integration of the consumers' flexibility into the system. Our study identifies the conditions that real-time prices may lead to higher electricity costs, which in turn contradicts the usual claim that such a pricing scheme reduces cost. We show that such undesirable behavior is in fact systemic. Due to the existing structure of the wholesale market, the predicted demand that is used in the formation of the price is never realized since the flexible users will change their demand according to such established price. As the demand is never correctly predicted, the volume traded through the balancing markets increases, leading to higher overall costs. In this case, the system can sustain, and even benefit from, a small number of flexible users, but this solution can never upscale without increasing the total costs. To avoid this problem, we implement the so-called "exclusive groups." Our results illustrate the importance of rethinking the current practices so that flexibility can be successfully integrated considering scenarios with and without intermittent renewable sources.
    Date: 2017–09

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