nep-reg New Economics Papers
on Regulation
Issue of 2019‒09‒23
fourteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Does Increasing Block Pricing Decrease Energy Use? Evidence from the Residential Electricity Market By Becka Brolinson
  2. Multi-part Tariffs and Differentiated Commodity Taxation By Anna D’Annunzio; Mohammed Mardan; Antonio Russo
  3. Funding Universal Services: Cross-subsidization and Net cost balancing By Urs Trinkner; Christian Jaag; Andreas Haller
  4. Measuring inefficiency in international electricity trading By Montoya, L.; Guo, B.; Newbery, D. M.; Dodds, P.; Lipman, G.; Castagneto Gissey, G.
  5. Productivity effects of an exogenous improvement in transport infrastructure: accessibility and the Great Belt Bridge By Bruno de Borger; Ismir Mulalic; Jan Rouwendal
  6. Improving Regulatory Effectiveness through Better Targeting: Evidence from OSHA By Johnson, Matthew S; Levine, David I; Toffel, Michael W
  7. Optimal dynamic volume-based price regulation By Michele Bisceglia; Roberto Cellini; Luigi Siciliani; Odd Rune Straume
  8. Taxes, traffic jam and spillover in the metropolis By Tidiane Ly
  9. The optimal payment system for hospitals under adverse selection, moral hazard, and limited liability By François Maréchal; Lionel Thomas
  10. About the relationship between renewable energy and oil markets. By Gaye Del Lo
  11. Fake Sales: A Dynamic Pricing Perspective By Garrett, Daniel F.
  12. More Power to the People: Electricity Adoption, Technological Change and Social Conflict By Molinder, Jakob; Karlsson, Tobias; Enflo, Kerstin
  13. Efficient Water Allocation when Climate is Changing: An interdisciplinary approach By Eugenio Figueroa; Ramón E. López; Gino Sturla
  14. Audits as Evidence: Experiments, Ensembles, and Enforcement By Kline, Patrick; Walters, Christopher

  1. By: Becka Brolinson (Department of Economics, Georgetown University)
    Abstract: Many electric utilities in the United States have replaced flat pricing schedules with increasing block prices (IBPs) in an effort to decrease aggregate energy use without imposing costs on low-income households. IBPs are step functions where the price per kilowatt-hour increases as a household uses more electricity. It is not clear, however, in theory or in practice, whether IBPs decrease aggregate energy use and protect low-income households relative to a revenue-neutral flat rate. I use detailed monthly billing records combined with demographic data for 11,745 California households and price differences over time across utility climate zones to estimate price elasticities of energy demand by income. The resulting estimates find that wealthier households are more price elastic than low-income households. I use these elasticities to show that IBPs increase total electricity use relative to a revenue-neutral flat price, therefore failing to achieve their goal of conservation. Finally, this paper finds that IBPs decrease electricity bills for low-income households while pushing costs to high-income households.
    Keywords: Consumer Economics: Empirical Analysis; Production, Pricing, and Market Structure; Electric Utilities; Government Policy; Energy Demand
    JEL: D12 L11 L94 L98 Q41
    Date: 2019–09–16
  2. By: Anna D’Annunzio (TBS Business School and CSEF); Mohammed Mardan (Norwegian School of Economics, CESifo and NoCeT); Antonio Russo (ETH Zürich)
    Abstract: We study commodity taxation in markets where firms, such as Internet Service Providers, energy suppliers and payment card platforms, adopt multi-part tariffs. We show that ad valorem taxes can correct underprovision and hence increase welfare, provided the government applies differentiated tax rates to the usage and access parts of the tariff. We obtain this result in different settings, including vertically interlinked markets, markets where firms adopt menus of tariffs to screen consumers and where they compete with multi-part tariffs. Our results suggest that exempting these markets from taxation may be inefficient.
    Keywords: Commodity taxation, multi-part tariffs, price discrimination
    JEL: D42 D61 H21
    Date: 2019–09–13
  3. By: Urs Trinkner; Christian Jaag; Andreas Haller
    Abstract: Incumbent operators providing universal services are increasingly active in competitive markets. Prices of universal services (US) products are often regulated. The traditional solution is to regulate the US products by separating accounts between US and non-US products and imposing a product-specific rate-of-return regulation on US products with fully allocated cost based on activities (ABC) as a point of reference. In this paper we analyze the competitive and welfare effects of the Swiss net cost balancing mechanism (NCB). NCB is applied since 2013 and allows the regulated USP to reallocate its net cost of the universal service obligation through internal transfer payments. The analysis in Section 2 leads to the conclusion that NCB is as least as strict as anti-cross-subsidization rules based on Faulhaber. If general competition law applies to non-universal services, NCB can be considered stricter. NCB can therefore be seen as an implementation of the Faulhaber rule. We further find that NCB increases welfare as compared to ABC costing clearly. The welfare increases are induced by a more market oriented, but cross-subsidy free USP pricing.
    Keywords: USO, cost allocation, net cost rebalancing, ramsey pricing, ABC
    JEL: L51
    Date: 2019–07
  4. By: Montoya, L.; Guo, B.; Newbery, D. M.; Dodds, P.; Lipman, G.; Castagneto Gissey, G.
    Abstract: We show that established metrics used to monitor electricity trading inefficiency become increasingly inaccurate in several trading conditions. We devise the Unweighted and Price-Weighted Inefficient Interconnector Utilisation indices to address these deficiencies. These metrics are substantially more accurate than existing ones and perform equally well whether or not markets are coupled. Our results show a substantial decrease in inefficient trading between Great Britain and both France and the Netherlands after the European Union’s market coupling regulations were introduced in 2014. In view of Great Britain’s likely withdrawal from the European Union, the paper also evaluates how market uncoupling would affect cross-border trade. We find that uncoupling would lead to inefficiencies in trade, the electricity price differential between GB and France (Netherlands) rising by 3% (2%), net imports into GB decreasing by 26% (13%), congestion income decreasing by 10% (5%), and infra-marginal surplus decreasing by 1.6% (1.6%) of coupled congestion income. We also show that, should the EU decide to implement an equivalent carbon tax to GB’s Carbon Price Floor, uncoupling impacts would be slightly magnified due to electricity prices converging (by about 1% of coupled congestion income).
    Keywords: Electricity trading efficiency, cross-border allocation, interconnector, market coupling, metrics
    JEL: C81 F14 F15 Q41
    Date: 2019–09–18
  5. By: Bruno de Borger (University of Antwerp); Ismir Mulalic (Technical University of Denmark); Jan Rouwendal (Vrije Universiteit Amsterdam)
    Abstract: Most studies of the effects of transport infrastructure on the performance of individual firms have focused on marginal expansions of the rail or highway network over time. In this paper, we study the short-run effects of a large discrete shock in the quality of transport infrastructure, viz. the opening of the Great Belt bridge connecting the Copenhagen area with a neighboring island and the mainland of Denmark. We analyse the effect of the opening of the bridge on the productivity of firms throughout the country using a two-step approach: we estimate firm- and year-specific productivity for a large panel of individual firms, using the approaches developed by Levinsohn and Petrin (2003) and De Loecker (2011). Then, controlling for firm-fixed effects, we relate productivity to a calculated measure of accessibility that captures the effect of the opening of the bridge. We find large productivity effects for firms located in the regions near the bridge, especially for relatively small firms in the construction and retail industry. Estimation results further suggest statistically significant but small positive wage effects throughout the country, even in regions far from the bridge. Finally, there is some evidence that the bridge has stimulated new activities in the Copenhagen region at the expense of firms disappearing on the neighboring island Funen.
    Keywords: production functions, productivity, accessibility, agglomeration, transport infrastructure
    JEL: R12 H54 O18
    Date: 2019–09–13
  6. By: Johnson, Matthew S; Levine, David I; Toffel, Michael W
    Abstract: We study how a regulator can best allocate its limited inspection resources. We direct our analysis to a US Occupational Safety and Health Administration (OSHA) inspection program that targeted dangerous establishments and allocated some inspections via random assignment. We find that inspections reduced serious injuries by an average of 9% over the following five years. We use new machine learning methods to estimate the effects of counterfactual targeting rules OSHA could have deployed. OSHA could have averted over twice as many injuries if its inspections had targeted the establishments where we predict inspections would avert the most injuries. The agency could have averted nearly as many additional injuries by targeting the establishments predicted to have the most injuries. Both of these targeting regimes would have generated over $1 billion in social value over the decade we examine. Our results demonstrate the promise, and limitations, of using machine learning to improve resource allocation. JEL Classifications: I18; L51; J38; J8
    Keywords: Social and Behavioral Sciences, Public Policy
    Date: 2019–09–01
  7. By: Michele Bisceglia (Department of Economics, Management and Quantitative Methods, University of Bergamo;); Roberto Cellini (Department of Economics and Business, University of Catania); Luigi Siciliani (Department of Economics and Related Studies, University of York); Odd Rune Straume (Department of Economics/NIPE, University of Minho,)
    Abstract: We consider a model of optimal price regulation in markets where demand is sluggish and asymmetric providers compete on quality. Using a spatial model, which is suitable to investigate the health care and education sector, we investigate within a dynamic set-up the scope for price premiums or penalties on volume. We show that the socially optimal time path of quality provision o¤ the steady state can be replicated by a simple dynamic pricing rule where the dynamic part of the rule is ex-ante non-discriminatory in the sense that the price premium or penalty on volume is common across providers, despite their differing production costs. Whether the price schedule involves a penalty or a premium on volume relates to two concerns regarding production costs and consumer bene ts, which go in opposite directions. Price adjustments over time occur only through the price penalty or premium, not time directly, which highlights the simplicity and thus applicability of this regulation scheme.
    Keywords: Price regulation; Quality; Di¤erential games
    JEL: C73 I11 I14 L13
    Date: 2019
  8. By: Tidiane Ly (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique, USI - Università della Svizzera italiana)
    Abstract: This paper studies local governments' public policies in a metropolitan area plagued by traffic congestion, where both residents and workers consume local public goods. We develop a new spatial sub-metropolitan tax competition model which features a central city surrounded by suburban towns linked by mobile capital and mobile residents who commute to work. We show that Pareto-efficiency is achieved if towns can retain their workers using labor subsidies. Otherwise, traffic congestion in the city is inefficiently high and local governments respond by setting inefficient public policies: (1) the city over-taxes capital and under-taxes residents, which leads to too little capital and too many residents in the city; (2) local public goods are under-provided in the city and over-provided in the towns.
    Keywords: Mobility,Tax competition,Urban economics,Traffic congestion,Public goods
    Date: 2019
  9. By: François Maréchal (Université de Bourgogne Franche-Comté, CRESE); Lionel Thomas (Université de Bourgogne Franche-Comté, CRESE)
    Abstract: This paper studies the optimal contract offered by a regulator to a partially altruistic hospital under adverse selection, moral hazard, and limited liability. We consider that the hospital privately observes the severity of illness of patients and chooses a hidden quality that influences the probability of some complications or comorbidities (CCs) occurring. We analyze the conditions under which the payment, for a given diagnosis Related Group, should be refined according to the severity of illness and the occurrence of CCs.
    Date: 2019–05
  10. By: Gaye Del Lo
    Abstract: This paper examines the link between oil and renewable energy markets. To this end, on the one hand, we identify high and low volatility states of oil markets, using the regime-switching EGARCH (1,1) model, and analyze its effects on the renewable energy market. On the other hand, we develop a methodology to identify positive and negative oil shocks and investigate their implications for renewable energy markets. We show that: (1) state shifts are clearly present in the oil and renewable energy data; (2) the volatility links between oil and renewable energy markets are regime-dependent. When the oil market is in a high-volatility regime, it exacerbates the volatility of renewable energy markets, but in a low-volatility regime, it has no effect or a stabilizing effect on the volatility of renewable energy market; (3) the results also reveal that the renewable energy market reacts positively to extreme upward movements of oil prices and negatively to extreme downward movements. These results have several implications in terms of policies, portfolio optimization and risk management.
    Keywords: Cliometrics, renewable energy; oil price; EGARCH(1,1); markov-switching; VaR.
    JEL: Q42 E44 C58
    Date: 2019
  11. By: Garrett, Daniel F.
    Abstract: Some sellers display high "regular" prices, but mark down these prices the vast majority of the time, advertising the good as "on sale" or "discounted". This note suggests a framework for understanding the practice, emphasizing the role of buyer uncertainty about their future valuations for the good. We argue that so-called "regular" prices set buyers' expectations regarding future prices, expectations that need not be tethered to the prices actually set. By manipulating upwards buyers' expectations of future prices, the seller can increase demand for the good at the current "sale" price, increasing profits
    Keywords: fake sales, dynamic pricing, value uncertainty
    JEL: D82 L12
    Date: 2019–09
  12. By: Molinder, Jakob (Department of Economic History, Uppsala University); Karlsson, Tobias (Department of Economic History, Lund University); Enflo, Kerstin (Department of Economic History, Lund University)
    Abstract: There is a wide-spread concern that technical change may spur social conflicts, especially if workers are replaced with machines. To empirically analyze whether job destruction drives protests, we study a historical example of a revolutionary new technology: the adoption of electricity. Focusing on the gradual roll-out of the Swedish electricity grid between 1900 and 1920 enables us to analyze 2,487 Swedish parishes in a difference-in-differences framework. Proximity to large-scale water-powered electricity plants is used to instrument for electricity adoption. Our results confirm that the labor saving nature of electricity was followed by an increase of local conflicts in the form of strikes. But displaced workers were not likely to initiate conflicts. Instead, strikes were most common in sectors with employment growth. Similarly,we find that the strikes were of an offensive rather than a defensive nature. Thus, electrification did not result in rebellions driven by technological anxiety. It rather provided workers with a stronger bargaining position from which they could voice their claims through strikes.
    Keywords: technological change; electrification; labor demand; labor conflicts; strikes; infrastructure investments
    JEL: N14 N34 N74 O14
    Date: 2019–09–19
  13. By: Eugenio Figueroa; Ramón E. López; Gino Sturla
    Abstract: This study analyzes the effects of rising water supply variability provoked by climate change on the welfare of a society whose economy heavily depends on water availability. Several studies recommend that communities should impose policies that ensure a minimum level of water allocation for human consumption. We compare two contracts, one where society allocates to the firm a fixed proportion of the annual water-runoff; and the other one, where due to the uncertainties of climate change, the community instead allocates to human consumption a fixed annual amount of water-runoff. We consider a risk-averse community. We show that, unless water supply is absolutely fixed, a higher variability and scarcity of water supply does not necessarily imply that society is better off choosing a contract that assures a minimum water for human consumption. Depending on the characteristics of water supply frequency distribution, particularly the third moment, it is possible that society would not benefit by switching to the fixed allocation contract for human consumption. We illustrate the main analytical results using data and runoff climate change projections from a water basin located in the central region of Chile, showing that in this case the community is better-off sticking to the current contract.
    Date: 2019–09
  14. By: Kline, Patrick; Walters, Christopher
    Keywords: Social and Behavioral Sciences, Gender and Race, Inequality, Public Policy
    Date: 2019–09–01

This nep-reg issue is ©2019 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.