nep-reg New Economics Papers
on Regulation
Issue of 2017‒10‒15
thirteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Knowledge accumulation from public renewable energy R&D in the European Union: Converging or diverging trends? By Grafström, Jonas; Söderholm, Patrik; Gawel, Erik; Lehmann, Paul; Strunz, Sebastian
  2. Optimal Regulation with Exemptions By Louis Kaplow
  3. Self-Sabotage in the Procurement of Distributed Energy Resources By Brown, David P.; Sappington, David E. M.
  4. Climate Policy Commitment Devices By Sebastian Dengler; Reyer Gerlagh; Stefan T. Trautmann; Gijs van de Kuilen
  5. Transfer Pricing Regulation and Taxation of Royalty Payments By Juranek, Steffen; Schindler, Dirk; Schjelderup, Guttorm
  6. Delegating climate policy to a supranational authority: a theoretical assessment By Pichler, Paul; Sorger, Gerhard
  7. Will Assets be Stranded or Bailed Out? Expectations of Investors in the Face of Climate Policy By Suphi Sen; Marie-Theres Von Schickfus
  8. Explaining Electricity Forward Premiums - Evidence for the Weather Uncertainty Effect By Obermüller, Frank
  9. Promoting structural transformation: Strategic diversification vs laissez-faire approach By Freire Junior, Clovis
  10. Shared Mobility Simulations for Helsinki By ITF
  11. Remarks on the German Regulation of Crowdfunding By Tröger, Tobias H.
  12. Net effects of Net Neutrality: The case of Amazon’s Net neutrality encourages content provision but also creates congestion externalities from the increase in data traffic. I study the consequences of net neutrality in, a popular internet platform, by estimating a two-sided market model that considers the interactions between content provision, its consumption and congestion. The platform is non-neutral because it gives preference to the most popular content providers by compressing their data, which makes them accessible to more consumers. I use the estimated preferences and technological parameters to study the counterfactual where net neutrality is imposed in the platform. Consumer welfare would drop 3 percent. The platform would need to significantly increase its investment in its physical infrastructure to compensate consumers for the drop. The drop will be underestimated if congestion is ignored. Content provision does not increase but its quality drops. By José Tudón;
  13. Interactions in Swiss Households' Energy Demand: A Holistic Approach By Ivan Tilov; Benjamin Volland; Mehdi Farsi

  1. By: Grafström, Jonas; Söderholm, Patrik; Gawel, Erik; Lehmann, Paul; Strunz, Sebastian
    Abstract: Bottom-up processes of policy convergence are increasingly discussed as a substitute for the absence of supranational energy policy coordination and harmonization in the EU. The overall objective of this paper is to analyse the development of government support to renewable energy R&D across EU countries over time: does the empirical evidence suggest bottom-up convergence? In order to answer this question, we first construct country-specific R&D-based knowledge stocks, and then investigate whether the developments of these stocks tend to converge or diverge across EU countries. A data set covering 12 EU Member States over the time period 1990-2012 is employed to test for the presence of conditional â-convergence using a bias-corrected dynamic panel data estimator. The empirical results are overall robust and suggest divergence in terms of public R&D-based knowledge build-up in renewable energy technology. This finding is consistent with free-riding behavior on the part of some Member States, and the presence of industrial policy motives in other States in combination with agglomeration effects in the renewable energy sector. Energy import dependence and electricity regulation are found to influence the growth of the R&D-based knowledge stock, and the deregulation of the EU electricity markets has tended to contribute to a lower speed of divergence.
    Keywords: renewable energy sources,public R&D support,convergence,European Union
    JEL: O44 Q55
    Date: 2017
  2. By: Louis Kaplow
    Abstract: Despite decades of research on mechanism design and on many practical aspects of cost-benefit analysis, one of the most basic and ubiquitous features of regulation as actually implemented throughout the world has received little theoretical attention: exemptions for small firms. These firms may generate a disproportionate share of harm due to their being exempt and because exemption induces additional harmful activity to be channeled their way. This article analyzes optimal regulation with exemptions where firms have different productivities that are unobservable to the regulator, regulated and unregulated output each cause harm although at different levels, and the regulatory regime affects entry as well as the output choices of regulated and unregulated firms. In many settings, optimal schemes involve subtle effects and have counterintuitive features: for example, higher regulatory costs need not favor higher exemptions, and the incentives of firms to drop output to become exempt can be too weak as well as too strong. A final section examines the optimal use of output taxation alongside regulation, which illustrates the contrast with the mechanism design approach that analyzes the optimal use of instruments of a type that are not in widespread use.
    JEL: D61 D62 H23 J88 K20 K23 K32 K42 L51 Q58
    Date: 2017–09
  3. By: Brown, David P. (University of Alberta, Department of Economics); Sappington, David E. M. (University of Florida, Department of Economics)
    Abstract: We analyze the regulatory procurement of electricity infrastructure that can take the form of either a traditional core investment or non-traditional distributed energy resources (DERs). We identify conditions under which a regulated utility will engage in self-sabotage (i.e., intentionally increase its own costs) in order to elicit more favorable procurement terms. We also demonstrate how the implementation of standard policies (e.g., cost reimbursement or a simple cost-sharing plan) or the adoption of a traditional core project rather than a potentially less-costly DER project can reduce procurement costs by deterring self-sabotage.
    Keywords: self-sabotage; distributed energy resources; regulation; procurement
    JEL: L51 L94 Q28 Q40
    Date: 2017–10–03
  4. By: Sebastian Dengler (Tilburg University); Reyer Gerlagh (Tilburg University and CREE - Oslo Centre for Research on Environmentally friendly Energy); Stefan T. Trautmann (Tilburg University and University of Heidelberg); Gijs van de Kuilen (Tilburg University)
    Abstract: We develop a dynamic resource extraction game that mimics the global multi-generation planning problem for climate change and fossil fuel extraction. We implement the game under different conditions in the laboratory. Compared to a ‘libertarian’ baseline condition, we find that policy interventions that provide a costly commitment device or reduce climate threshold uncertainty reduce resource extraction. We also study two conditions to assess the underlying social preferences and the viability of ecological dictatorship. Our results suggest that climate-change policies that focus on investments that lock the economy into carbon-free energy sources provide an important commitment device in the intertemporal cooperation problem.
    Keywords: Climate Policy Instruments, Intertemporal Cooperation, Climate Game, Experiments
    JEL: C91 D62 D99 Q38 Q54
    Date: 2017–09
  5. By: Juranek, Steffen; Schindler, Dirk; Schjelderup, Guttorm
    Abstract: We analyze the implications of OECD methods to regulate transfer pricing and the role of a royalty tax for abusive transfer pricing. We show: (i) Under traditional methods, mispricing of royalty payments does not affect investment, but the Transactional Profit Split Method triggers higher investment to facilitate profit shifting. (ii) Royalty taxation reduces both profit shifting and investment. (iii) A royalty tax rate below the corporate tax rate leads to overinvestment in an ACE tax system.
    JEL: H25 H32 F23
    Date: 2017
  6. By: Pichler, Paul; Sorger, Gerhard
    Abstract: We study the delegation of climate policy to a supranational environmental authority. We demonstrate that the authority faces a dynamic inconsistency problem that leads to welfare losses. The losses can be kept small if the mandate of the authority penalizes the local cost of emissions heavily, but puts little or no weight on the cost of climate change. The design of the authority's mandate creates another dynamic inconsistency because the countries face a recurrent incentive to modify it.
    JEL: F53 H87 O33 Q43 Q54
    Date: 2017
  7. By: Suphi Sen; Marie-Theres Von Schickfus
    Abstract: The goal to keep global warming below 2°C implies that many energy-sector assets are at risk of becoming stranded. This paper investigates whether and how investors price in stranded asset risk due to climate policy. We exploit the gradual development of a German climate policy proposal aimed at reducing electricity production from coal and analyze its effect on the valuation of energy utilities. We find that investors do care about stranded asset risk due to climate policy, but that they also expect a financial compensation policy for their stranded assets. We show that these results are not driven by contemporaneous confounding events.
    Keywords: Stranded assets, climate policy
    JEL: Q38 G14
    Date: 2017
  8. By: Obermüller, Frank (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))
    Abstract: With the increasing share of volatile renewable energies, weather prediction becomes more important to electricity markets. The weather-driven uncertainty of renewable forecast errors could have price increasing impacts. This research sets up an analytic model to show that the day-ahead optimal bidding under uncertain renewable production is below the expected production and thus price increasing. In a second step, the price increasing effect on forward premiums by specific weather types and their renewable production uncertainty is proved via empirical methods. Weather types are identified in which renewable production is harder to predict. The findings connect weather dependent renewable forecast uncertainty to forward premiums and support the consideration of weather types in price forecasting models.
    Keywords: Forward Premium; Weather Type; Uncertainty; Volatile Renewable Production
    JEL: D21 D22 D41 D81 Q41 Q42 Q47
    Date: 2017–09–28
  9. By: Freire Junior, Clovis (United Nations, Division for Sustainable Development, Department of Economic and Social Affairs, and UNU-MERIT, Maastricht University)
    Abstract: Economic development is associated with structural transformation and the increase of complexity of production and exports. This paper examines whether strategic diversification is required to increase economic complexity or whether market incentives would be sufficient to drive this process of catching-up. The paper applies empirical methods of the strand of the literature on economic complexity to examine how path dependency and the demand for potential new products affect economic diversification. It argues that strategic diversification is required in cases when demand factors are very likely to create incentives for diversification towards less complex products, which hinders the increase of productive capacities of countries. The paper presents the results of analysis considering 221 economies and shows that less diversified economies would not be able to rely on market incentives alone. They have to strategically diversify towards more complex products, which require the selective promotion of economic activities through the use of targeted industrial, infrastructure, trade, investment and private sector development policies.
    Keywords: Diversification, Structural Transformation, Productive Capacities, Industrial Policy, Economic Development
    JEL: O11 O14 O33 O38 O53 O57
    Date: 2017–09–05
  10. By: ITF
    Abstract: This report examines how the optimised use of new on-demand shared transport modes could change the future of mobility in the Helsinki Metropolitan Area in Finland. Based on simulation, it provides indicators for the impact of shared mobility solutions on accessibility, metro/rail ridership, required parking space, congestion and CO2 emissions. The model also analyses service quality, efficiency and cost competitiveness of the shared solutions. In addition, the report explores the willingness among the citizens of the Helsinki region to adopt shared mobility solutions based on focus group analysis. The findings provide an evidence base for decision makers to weigh opportunities and challenges created by new forms of shared transport services. The work is part of a series of studies on shared mobility in different urban and metropolitan contexts. This report is part of the International Transport Forum’s Case-Specific Policy Analysis series. These are topical studies on specific issues carried out by the ITF in agreement with local institutions.
    Date: 2017–10–12
  11. By: Tröger, Tobias H.
    Abstract: Crowdfunding is a buzzword that signifies a sub-set in the new forms of finance facilitated by advances in information technology usually categorized as fintech. Concerns for financial stability, investor and consumer protection, or the prevention of money laundering or funding of terrorism hinge incrementally on including the new techniques to initiate financing relationships adequately in the regulatory framework. This paper analyzes the German regulation of crowdinvesting and finds that it does not fully live up to the regulatory challenges posed by this novel form of digitized matching of supply and demand on capital markets. It should better reflect the key importance of crowdinvesting platforms, which may become critical providers of market infrastructure in the not too distant future. Moreover, platforms can play an important role in investor protection that cannot be performed by traditional disclosure regimes geared towards more seasoned issuers. Against this background, the creation of an exemption from the traditional prospectus regime seems to be a plausible policy choice. However, it needs to be complemented by an adequate regulatory stimulation of platforms' role as gatekeepers.
    Keywords: crowdinvesting,crowdfunding,fintech,financial stability,market infrastructure,investor protection
    JEL: G23 G28 G38 K22 K23
    Date: 2017
  12. By: José Tudón (Department of Economics, The University of Chicago, 1126 E. 59th St., Chicago, IL 60637, USA);
    Keywords: Net neutrality; Congestion externalities; Internet; Two-sided markets
    JEL: D22 D62 L13 L14 L82 L96
    Date: 2017–01
  13. By: Ivan Tilov; Benjamin Volland; Mehdi Farsi
    Abstract: This article explores the interactions between direct and embodied energy requirements of households in Switzerland in order to assess the net impacts of standard energy policies focusing exclusively on direct energy use. For this purpose, we estimate direct and embodied energy demand of Swiss households by combining consumption data of a national expenditure survey with corresponding data on energy intensity mainly from life-cycle analysis. We find strong evidence of complementarity between direct and grey energy by first estimating model parameters in a system of equations setup. In particular, the analysis of various socio-economic and psychological determinants allows us to identify a non-linear relationship between energy demand and income, which suggests that energy possesses certain "luxury features" that go beyond staple resources. An additional indication that households in Switzerland use direct and indirect energy in a complementary manner is provided by the coefficient of cross-equation correlation of residuals in our system. Finally, we analyze the causal relationship between both energy domains by the method of instrumental variables and find indicative evidence of a positive causal effect of embodied on direct energy demand, but not the other way round. From a policy perspective, our findings are important as they suggest that the wide-spread policies targeting direct energy consumption are unlikely to cause a substantial shift in household energy demand from the direct to the indirect domain.
    Keywords: Households Energy Requirements; Direct Energy; Embodied Energy; Interactions; Trade-offs; Complementarity.
    JEL: Q40 Q41 D12
    Date: 2017–10

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