nep-reg New Economics Papers
on Regulation
Issue of 2019‒09‒30
sixteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Effective Climate Policy Doesn’t Have to be Expensive By Klaus Gugler; Adhurim Haxhimusa; Mario Liebensteiner
  2. Evidence for and modelling of a decreasing long-run elasticity of substitution between clean and dirty energy By Anthony Wiskich
  3. Limit pricing, climate policies, and imperfect substitution By Gerard van der Meijden; Cees Withagen
  4. Public procurement as policy instrument for innovation By Dirk Czarnitzki; Paul Hünermund; Nima Moshgbar
  5. Provable loss analysis - evaluation of financial health in public transportation from accounting viewpoint By Martin Telecký
  6. Optimal climate policy with directed technical change, extensive margins and a decreasing elasticity of substitution between clean and dirty energy By Anthony Wiskich
  7. Quality Regulation and Competition: Evidence from Pharmaceutical Markets By Jesus Juan Pablo Atal; Jose´ Ignacio Cuesta; Morten Sæthre
  8. How to go green? The effects of power system flexibility on the efficient transition to renewable generation By Neetzow, Paul
  9. What Are the Benefits of Data Sharing? Uniting Supply Chain and Platform Economy Perspectives By Huttunen, Henri; Seppälä, Timo; Lähteenmäki, Ilkka; Mattila, Juri
  10. Understanding the Early Adopters of Fuel Cell Vehicles By Hardman, Scott
  11. Linking Permit Markets Multilaterally By Baran Doda; Simon Quemin; Luca Taschini
  12. Competition and price stickiness: Evidence from the French retail gasoline market By Sylvain Benoit; Yannick Lucotte; Sébastien Ringuedé
  13. Climate Change, Directed Innovation, and Energy Transition: The Long-run Consequences of the Shale Gas Revolution By Daron Acemoglu; David Hemous; Lint Barrage; Philippe Aghion
  14. Is access to public services valued differently in low- and high-end housing submarkets? By Linchuan Yang; Kwong Wing Chau; Zhu Yuan
  15. Autonomous cars and dynamic bottleneck congestion revisited: how in-vehicle activities determine aggregate travel patterns By Xiaojuan Yu; Vincent van den Berg; Erik Verhoef
  16. Machine Learning for Solar Accessibility: Implications for Low-Income Solar Expansion and Profitability By Sruthi Davuluri; René García Francheschini; Christopher R. Knittel; Chikara Onda; Kelly Roache

  1. By: Klaus Gugler (Research Institute for Regulatory Economics, Vienna University of Economics and Business); Adhurim Haxhimusa (Institute for Quantitative Economics, Research Institute for Regulatory Economics, Vienna University of Economics and Business); Mario Liebensteiner (Institute for Resource and Energy Economics, TU Kaiserslautern)
    Abstract: We compare the effectiveness of different climate policies in terms of emissions abatement and costs in the British and German electricity markets. The two countries follow different climate policies, allowing us to compare the effectiveness of a relatively low EU ETS carbon price in Germany with a significantly higher carbon price due to a unilateral top-up tax (the Carbon Price Support) in the UK. We first estimate the emissions offsetting effects of carbon pricing and of subsidized wind and solar feed-in, and then derive the abatement costs of one tonne of CO2 for the different policies. We find that a reasonably high price for emissions is the most cost-effective climate policy, while subsidizing wind is preferable to subsidizing solar power. A carbon price of around EURO 35 is enough in the UK to induce vast short-run fuel switching between coal- and gas-fired power plants, leading to significant emissions abatement at low costs.
    Keywords: Climate change policy, Carbon price, EU ETS, UK Carbon Price Floor, UK Carbon Price Support, Subsidization of renewables
    JEL: L94 L98 Q38 Q54 Q58
    Date: 2019–09
  2. By: Anthony Wiskich
    Abstract: A review of the literature indicates a decreasing long-run elasticity of substitution between clean and dirty inputs as the share of clean inputs rises. In the power sector, which is the largest contributor to greenhouse gas emissions, integrating intermittent clean energy supply becomes increasingly difficult as the clean share rises. This paper describes a simple structural model of electricity generation which: demonstrates how the elasticity falls as the clean share rises; can replicate the range of results from the electricity literature; considers the effects of storage, and; facilitates estimation of a suitable production function. A bimodal production function with two elasticity regimes - an elasticity above 8 up to a 50 to 70 per cent clean share and an elasticity below 3 beyond this share – can replicate results well from the structural model.
    Keywords: Elasticity of substitution, climate change, energy, electricity, production function
    JEL: O33 O44 Q30 Q54 Q56 Q58
    Date: 2019–09
  3. By: Gerard van der Meijden (Vrije Universiteit Amsterdam); Cees Withagen (IPAG Business School)
    Abstract: The effects of climate policies are often studied under perfect competition and constant marginal extraction costs. In this paper, we allow for monopolistic fossil fuel supply and more general cost functions, which, in the presence of perfectly substitutable renewables, gives rise to limit-pricing behavior. Four phases of supply may exist in equilibrium: sole supply of fossil fuels below the limit price, sole supply of fossil fuels at the limit price, simultaneous supply of fossil fuels and renewables at the limit price, and sole supply of renewables at the limit price. The consequences of climate policies for initial extraction depend on the initial phase: in case of sole supply of fossil fuels at the limit price, a renewables subsidy increases initial extraction, whereas a carbon tax leaves initial extraction unaffected. With simultaneous supply at the limit price or with sole supply of fossil fuels below the limit price, a renewables subsidy and a carbon tax lower initial extraction. Both policy instruments decrease cumulative extraction. If fossil fuels and renewables are imperfect but good substitutes, the monopolist will exhibit ‘limit-pricing resembling’ behavior, by keeping the effective price of fossil close to that of renewables for considerable time.
    Keywords: limit pricing, non-renewable resource, monopoly, climate policies
    JEL: Q31 Q42 Q54 Q58
    Date: 2019–09
  4. By: Dirk Czarnitzki; Paul Hünermund; Nima Moshgbar
    Abstract: The use of public procurement to promote private innovation activities has attracted increasing attention recently. Germany implemented a legal change in its procurement framework in 2009, which allowed government agencies to specify innovative aspects of procured products as selection criteria in tender calls. We analyze a representative sample of German firms to investigate whether this reform stimulated innovation in the business sector. Across a wide set of specifications—OLS, nearest-neighbor matching, IV regressions and difference-in-differences—we find a robust and significant effect of innovation-directed public procurement on turnover from new products and services. However, our results show that the effect is largely attributable to innovations of more incremental nature rather than market novelties.
    Keywords: Public Procurement of Innovation, ublic Procurement with Contracted Innovation, Technical Change, Research and Development, Econometric Policy Evaluation
    Date: 2018–01
  5. By: Martin Telecký (Department of Accounting and Finances, Faculty of Economics, University of South Bohemia In České Budějovice)
    Abstract: The submitted paper analyses the financial health evaluation of the public transport company. The main goal of the paper is to analyse determining of the provable loss amount in the public line transport, track-based transport and municipal public transport pursuant to Government Decree No. 493/2004 Sb., Regulation No. 241/2005 Sb. and Regulation No. 296/2010 Sb. and the methods of payment of subsidies in the regional and long-distance transport. Basic characteristics or the explanatory power of individual legal regulations addressing the issue of economically substantiated costs and revenues and the payment of the relevant amount of compensation (subsidy) arising from the basic transport services prove that Regulation No. 296/2010 Sb. promotes higher financial drawing from public budgets for the needs of ensuring basic transport services and for the renewal of the fleet as compared with Government Decree No. 493/2004 Sb. in case of the public line transport and Regulation No. 241/2005 Sb. in case of the public track-based transport. The partial goal of the thesis is to classify the cost and revenue items affecting the amount of the subsidy and to propose effective classification in individual groups of economically substantiated costs on the basis of their explanatory power.
    Keywords: Public transport, Basic transport services, Provable loss, Economically substantiated costs, Financial health of the company, Public finance
    JEL: R40 M41
    Date: 2019–05
  6. By: Anthony Wiskich
    Abstract: This paper extends the climate model with endogenous technology of Acemoglu, Aghion, Bursztyn, and Hemous (2012). A non-energy sector is introduced which decreases the costs of abatement by more than an order of magnitude through the extensive margin of labour, as labour can move freely between sectors. An extensive margin of research, where researchers can switch between non-energy and energy research, leads to a period of intense research in the clean sector above the long-run share and increases the power of policy to avert environmental disaster. A decreasing elasticity of substitution between clean and dirty inputs as the share of clean energy rises is also considered, reflecting the increasing difficulty of integrating intermittent clean energy supply in electricity. A decreasing elasticity increases the initial optimal tax on dirty energy and therefore lowers the subsidies required to direct technical change towards clean energy.
    Keywords: Climate change, directed technical change, optimal policy, energy
    JEL: O33 O44 Q30 Q54 Q56 Q58
    Date: 2019–09
  7. By: Jesus Juan Pablo Atal (University of Pennsylvania); Jose´ Ignacio Cuesta (University of Chicago); Morten Sæthre (Norwegian School of Economics)
    Abstract: Quality regulation attempts to ensure quality and to foster price competition by reducing vertical di?erentiation, but may also have unintended consequences through its e?ects on market structure. We study these e?ects in the context of pharmaceutical bioequivalence, which is the primary quality standard for generic drugs. Exploiting the staggered phase-in of bioequivalence requirements in Chile, we show that stronger quality regulation decreased the number of drugs in the market by 25%, increased average paid prices by 10%, decreased total sales by 20%, and did not have a significant e?ect on observed outcomes related to drug quality. These adverse e?ects were concentrated among small markets. Our results suggest that the intended e?ects of quality regulation on price competition through increased (perceived) quality of generics were overturned by adverse competitive e?ects arising from the costs of complying with the regulation.
    Keywords: Aggregate quality regulation, competition, bioequivalence, generic pharmaceuticals
    JEL: I11 L11 L15
    Date: 2019–07–15
  8. By: Neetzow, Paul
    Abstract: For decarbonization purposes, variable renewable energies (VRE) are widely and quickly deployed in historically fossil-dominated power systems. Yet, some fossil technologies are more suitable than others for integration with VRE due to their higher flexibility. I utilize an analytically tractable model to study the optimal transition to a VRE-dominated sys-tem when the endowment of flexible and inflexible conventional generators is rigid. I find that the existence of inflexible fossil generators hampers early deployment of VRE. How-ever, deployment speed increases after VRE begin to substitute generation from inflexible generators, which happens after VRE and inflexible capacities strictly exceed demand together. At this time, the decreasing use of inflexible fossil generation is usually ac-companied by an increasing utilization of flexible generators. Nevertheless, constructing additional flexible capacities is only profitable under restrictive conditions. By contributing to a better understanding of the impact of flexibility on efficient VRE deployment, this work may facilitate an efficient transition process.
    Keywords: Agricultural and Food Policy, Food Security and Poverty, Resource /Energy Economics and Policy
    Date: 2019–09–24
  9. By: Huttunen, Henri; Seppälä, Timo; Lähteenmäki, Ilkka; Mattila, Juri
    Abstract: Abstract Data as a resource and data sharing enable competitive supply chains and present-day digital platform business models. The recipe for these competitive supply chains will no longer be contingent on how different companies contract to share data in their existing business networks but how these companies make these contracts available for the others in multisided markets. Advancing the availability of data sharing contracts has led to novel internal and external operational efficiencies and to new types of strategic opportunities. Data sharing is nothing new. Approximately 49% of the companies already share data with other companies. How has data sharing emerged between companies? What types of benefits have companies reached by sharing data? Those are the two research questions we are answering in this study. Additionally, we map the trajectory of data sharing technologies and their benefits for companies. External strategic opportunities cannot be reached unless the product, service and software architectures are modular; in addition, the boundary resources are not being considered by the companies. Finally, the tools for evaluating the value capture of indirect network effects is missing from widely accepted business case valuation methods. The question remains – what type of data resources can companies treat as proprietary or as shared?
    Keywords: Data as a resource, Data sharing, Boundary resources, EDI-economy, API-economy, Network Effects, IHAN-project
    JEL: M21 O30 P49
    Date: 2019–09–19
  10. By: Hardman, Scott
    Abstract: In this study, the author presents results from a survey of 906 FCV and 12,910 BEV households in California. They investigated the sociodemographic profile of FCV buyers and compare them to BEV households. FCV and BEV households are similar in many areas. There is no significant difference in household income, number of people in the household, number of vehicles in the household, gender, or level of education. However, FCV and BEV households do differ in some key areas. Compared to BEV households, FCV households are slightly older; less own their own home; more live in an apartment, condo, or townhouse; they have owned more alternative fuel vehicles previously (but fewer BEVs); they have higher VMT; and slightly longer commutes. These differences may explain why these households choose to adopt a FCV. As fewer FCV households own their home, and more live in multi-unit dwellings they may have more barriers to accessing recharging from home, which may be why they selected a FCV rather than a BEV. Their slightly longer commutes and higher VMT may mean they perceive FCVs to be a better fit with their household’s travel patterns, though their commutes are well within the range of a BEV. View the NCST Project Webpage
    Keywords: Social and Behavioral Sciences, Fuel cell vehicle, battery electric vehicle, electric vehicle
    Date: 2019–09–01
  11. By: Baran Doda (LSE); Simon Quemin (LSE); Luca Taschini (LSE)
    Abstract: We formally study the determinants, magnitude and distribution of efficiency gains generated in multilateral linkages between permit markets. We provide two novel decomposition results for these gains, characterize individual preferences over linking groups and show that our results are largely unaltered with strategic domestic emissions cap selection or when banking and borrowing are allowed. Using the Paris Agreement pledges and power sector emissions data of five countries which all use or considered using both emissions trading and linking, we quantify the efficiency gains. We find that the computed gains can be sizable and are split roughly equally between effort and risk sharing.
    Keywords: Climate change policy, International emissions trading systems, Multilateral linking, Effort sharing, Risk sharing
    JEL: Q58 H23 F15
    Date: 2019–09
  12. By: Sylvain Benoit (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Yannick Lucotte (LEO - Laboratoire d'Économie d'Orleans - CNRS - Centre National de la Recherche Scientifique - Université de Tours - UO - Université d'Orléans); Sébastien Ringuedé (LEO - Laboratoire d'Economie d'Orléans - Université - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Using daily price quotes from about 8,000 French gas stations, this paper empirically analyses whether the level of competition determines the degree of price stickiness on the retail gasoline market. The degree of price rigidity is measured by the frequency of price changes, while the distance to the nearest station and the number of gas stations within a given radius are considered as proxies for local competition. The results confirm that local competition is an important determinant of the price-setting behavior of gas stations. Indeed, considering Ordinary Least Squares (OLS) and spatial regression models, we find that the degree of price rigidity is positively related to the distance to the nearest station, and negatively related to the concentration of firms in a given geographical area. This result can be notably explained by the fact that gas stations facing a high competitive pressure are more likely to adjust their prices more quickly and more frequently in response to crude oil price decreases than stations enjoying market power.
    Keywords: Retail gasoline pricing,Price-setting behavior,Price stickiness,Localcompetition
    Date: 2019–09–19
  13. By: Daron Acemoglu (Massachusetts Institute of Technology); David Hemous (University of Zurich); Lint Barrage (Brown University); Philippe Aghion (LSE)
    Abstract: The shale gas revolution can potentially reduce CO2 emissions in the short-run in countries which depend heavily on coal. Yet, it may also discourage innovation in green technologies, leading to lower emissions in the long-run. We document that the shale gas revolution was accompanied by a collapse in innovation in green electricity. We build a model of directed technical change where energy is produced using coal, and/or natural gas, and/or a green source of energy. We derive conditions under which, as a result of the above trade-off, the shale gas revolution reduces emissions in the short-run but increases emissions in the long-run. We then use data on electricity production to calibrate the model.
    Date: 2019
  14. By: Linchuan Yang; Kwong Wing Chau; Zhu Yuan
    Abstract: Previous research suggests that access to public services, generally, has a positive impact on housing prices. However, most, if not all, studies are silent on whether the effect varies across different housing submarkets. For example, wealthy households are likely to own cars and thus have high transportation mobility. Thus, they may not value access to public services in the same way as low-income households do. We use 22,586 second-hand housing data in Xiamen, China to test the differential impact of access to public services on housing prices in the high- and low-end submarkets. Low- and high-end housing submarkets are defined according to price. Results from estimating the hedonic pricing and spatial econometric models confirm several findings: (1) the benefits of access to most public services are capitalized in housing prices; (2) access to transit, commercial facility, education, and sports/cultural center has significantly positive impacts on house prices in the low-end housing submarket. Yet, this finding is less applicable to the high-end counterpart; (3) the effect of access to public services on housing prices varies across the two submarkets: typically, access to public services has lower positive impact for high-end properties than for the low-end ones; and (4) interestingly, access to shopping center has a larger positive impact on housing prices in the high-end housing submarket than in the low-end counterpart. Practical implications of our findings are also discussed.
    Keywords: access to public services; capitalization effect; Market Segmentation; Property price; spatial econometric model
    JEL: R3
    Date: 2019–01–01
  15. By: Xiaojuan Yu (Huazhong University of Science and Technology); Vincent van den Berg (Vrije Universiteit Amsterdam); Erik Verhoef (Vrije Universiteit Amsterdam)
    Abstract: We investigate the impacts of in-vehicle activities of commuters in the autonomous car on aggregate travel patterns. We allow for an autonomous car to affect the utility difference between being at home and being in the vehicle differently than the utility difference between being at work and being in the vehicle, compared to the differences experienced with a normal car. This affects the relative importance of values of travel delays, schedule delays early, and schedule delays late. Hence multiple possible changes in travel patterns may occur when autonomous cars become available. Switching to an autonomous vehicle may impose a net negative or positive externality, by raising the marginal external cost of autonomous cars themselves while lowering that of normal cars. We examine three provision regimes: marginal cost pricing, second-best pricing and profit-maximizing pricing by a private monopoly. The second-best mark-up (over marginal cost) rises with the price sensitivity, due to the increasing marginal external cost. Surprisingly, for the monopoly, mark-up may rise or fall with the price sensitivity, depending on the relative strength of the externality and of market power, where the former tends to raise it, and the latter tends to reduce it. Furthermore, the difference of the mark-up between private monopoly and second-best public provision falls as the demand becomes more price-sensitive.
    Keywords: Autonomous cars, Bottleneck model, Traffic congestion, Private vs public provision
    JEL: H23 D62 R48
    Date: 2019–09–20
  16. By: Sruthi Davuluri; René García Francheschini; Christopher R. Knittel; Chikara Onda; Kelly Roache
    Abstract: The solar industry in the US typically uses a credit score such as the FICO score as an indicator of consumer utility payment performance and credit worthiness to approve customers for new solar installations. Using data on over 800,000 utility payment performance and over 5,000 demographic variables, we compare machine learning and econometric models to predict the probability of default to credit-score cutoffs. We compare these models across a variety of measures, including how they affect consumers of different socio-economic backgrounds and profitability. We find that a traditional regression analysis using a small number of variables specific to utility repayment performance greatly increases accuracy and LMI inclusivity relative to FICO score, and that using machine learning techniques further enhances model performance. Relative to FICO, the machine learning model increases the number of low-to-moderate income consumers approved for community solar by 1.1% to 4.2% depending on the stringency used for evaluating potential customers, while decreasing the default rate by 1.4 to 1.9 percentage points. Using electricity utility repayment as a proxy for solar installation repayment, shifting from a FICO score cutoff to the machine learning model increases profits by 34% to 1882% depending on the stringency used for evaluating potential customers.
    JEL: C53 L11 L94 Q2
    Date: 2019–09

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.
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