nep-reg New Economics Papers
on Regulation
Issue of 2019‒10‒07
23 papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Neither crowding in nor out: Public direct investment mobilising private investment into renewable electricity projects By Matteo Deleidi; Mariana Mazzucato; Gregor Semieniuk
  2. Cost-efficiency and quality regulation of a public utility By Marten Ovaere
  3. Assessment of the drafted German Integrated National Energy and Climate Plan By Marius Buchmann; Julia Kusznir; Gert Brunekreeft
  4. Optimal Contracts for Renewable Electricity By Sarah Parlane; L. (Lisa B.) Ryan
  5. Mission (im)possible? Mobilizing innovation – and policies supporting it – in the transition to sustainability By Jan Fagerberg
  6. How much do households repond to electricity prices? Evidence from Australia and abroad By Lorraine Conway; David Prentice
  7. Public procurement as policy instrument for innovation By Dirk Czarnitzki; Paul Hünermund; Nima Moshgbar
  8. Market power in bilateral oligopoly markets with non-expandable infrastructures By Yukihiko Funaki; Harold Houba; Evgenia Motchenkova
  9. Do sustainable energy policies matter for reducing greenhouse gas emissions? By D. Baiardi
  10. The value of energy efficient housing - is there an incentive to make houses more energy efficient? By Gunther Maier
  11. Multi-Part Tariffs and Differentiated Commodity Taxation By Anna D'Annunzio; Mohammed Mardan; Antonio Russo
  12. Economic and Environmental Impacts of a Carbon Adder in New York By Goekce Akin-Olçum; Christoph Boehrinngerr; Thomas Rutherford; Andrew Schreiber
  13. Estimating Path Dependence in Energy Transitions By Kyle Meng
  14. Privatization and growth: natural experiment of European economies in transition By Kant, Chander
  15. Pay for Content or Pay for Marketing? An Empirical Study on Content Pricing By Xintong Han; Pu Zhao
  16. Prices, Schedules, and Passenger Welfare in Multi-Service Transportation Systems By Etienne Billette de Villemeur; Annalisa Vinella
  17. Risk-Sharing and Investment in Concentrated Markets By Daniel Neuhann; Michael Sockin
  18. Cost containment in pollution auctions By Lana Friesen; Lata Gangadharan; Peyman Khezr; Ian A. MacKenzie
  19. Zero emission vehicle exposure within U.S. carsharing fleets and impacts on sentiment toward electric drive vehicles By Shaheen, Susan PhD; Martin, Elliot
  20. Mandated Financial Reporting and Corporate Innovation By Matthias Breuer; Christian Leuz; Steven Vanhaverbeke
  21. 3G Internet and Confidence in Government By Sergei Guriev; Nikita Melnikov; Ekaterina Zhuravskaya
  22. Motivating air navigation service provider performance By Nicole Adler; Eef Delhaye; Adit Kivel; Stef Proost
  23. What do adoption patterns of solar panels observed so far tell about governments' incentive? insight from diffusion models By Anita M. Bunea; Pietro Manfredi; Pompeo Della Posta; Mariangela Guidolin

  1. By: Matteo Deleidi (Department of Economics, University Roma Tre); Mariana Mazzucato (UCL Institute of Innovation and Public Purpose); Gregor Semieniuk (Department of Economics, SOAS University of London)
    Abstract: Rapid structural change towards a low-carbon energy supply requires significant additional investments into innovative but high-risk low-carbon technologies. Mobilising greater private investments requires applying the right policy instruments, but while fiscal measures and regulation have been well researched, systematic quantitative evidence about the effect of public direct investment is lacking. Absent empirical evidence, contradictory theoretical arguments claim that such public (co-)investments either ‘crowd out’ or ‘crowd in’ private investors. In this paper we show that the macroeconomic concept of crowding out/in is inapplicable to sectoral studies such as of renewable electricity. Instead, both neoclassical microeconomics and evolutionary economics suggest public direct investment to have a positive effect due to either externalities or market creation effects. We also provide the first quantitative estimate of the effect of public direct investment on private investment into renewable electricity technologies for 17 countries in the period 2004-2014. Using feasible generalised least squares (FGLS) and static and dynamic generalised method of moments (GMM) estimators, we find that public investments not only have a positive but also consistently the largest effect on private investment flows relative to feed-in tariffs, taxes and renewable portfolio standards in general, and for wind and solar technologies separately. Implications for policy aimed at accelerating the low-carbon transition are discussed.
    Keywords: public direct investment, crowding out, crowding in, renewable electricity technology, innovation financing, externality, entrepreneurial state, market creation, climate change mitigation policy
    JEL: G3 H23 H54 O3 Q42 Q48 Q55
    Date: 2019–09
  2. By: Marten Ovaere
    Abstract: This paper studies the effect of linear cost-efficiency and quality regulation of a public utility on its cost-reducing effort and its provided quality level. The analysis shows that a quality incentive increases both quality and effort, while a cost-efficiency incentive increases effort and decreases quality. Next, introducing uncertainty and asymmetric information, I show that the power of the cost-efficiency and quality incentive should optimally be equal and below one. The incentive powers decrease with increasing uncertainty and increasing dislike for public utility profit. Last, we analyze case studies in electricity, gas and water. As in most cases the power of the quality incentive is higher than the power of the cost-efficiency incentive, the model predicts that supplied quality is too high.
    Date: 2017–12
  3. By: Marius Buchmann; Julia Kusznir; Gert Brunekreeft
    Abstract: Germany is struggling to meet its 2020 greenhouse gas (GHG) emission and climate goals. Against this background, we analyze the current draft National Energy and Climate Plan (NECP) that sets out how Germany aims to achieve its national and European climate goals by 2030. We introduce the current stage of the country’s climate policy and, by looking at the different emission reduction measures under discussion, examine why Germany will probably miss its CO2 emissions reduction goals. We conclude that, based on the climate package announced in September 2019, Germany will get closer to the achievement of its 2030 targets than was anticipated in the NECP draft; nevertheless, the new climate package leaves a significant gap between the new measures and the 2030 climate goals.
    Keywords: German climate policy, energy and climate goals, emission reduction measures
    JEL: L38 L98 Q28 Q48 Q58
    Date: 2019–09
  4. By: Sarah Parlane; L. (Lisa B.) Ryan
    Abstract: Companies are increasingly choosing to procure their power from renewable energy sources, with their own set of potential challenges. In this paper we focus on contracts to procure electricity from renewable sources that are inherently unreliable (such as wind and solar). We determine the contracts that minimize the cost of procuring a given amount of renewable energy from two risk-averse generators. We contrast outcomes arising when investments are set in centralised and decentralised settings, with the absence of reliability addressed by either issuing orders in excess of what is needed or by investing in improved reliability. Our results suggest that future contracts may be geared towards a greater reliance on order inflation and lower investments in reliability as the cost of renewable energy keeps falling. The implications of these results for grid congestion and electricity spot market prices should be of interest to regulators and transmission system operators.
    Keywords: Renewable electricity contracts; Power purchase agreements; Newsvendor model; Risk aversion; Order inflation; Moral hazard
    JEL: D81 D86 L14 L24 L94 Q21
    Date: 2019–09
  5. By: Jan Fagerberg (Centre for Technology, Innovation and Culture, University of Oslo & UNU-MERIT)
    Abstract: Research has shown that transitions easily may take several decades if not more to unfold. However, it has also been suggested that change may occur faster when advantages for end-users are sufficiently large and/or there are proactive policies in place. This paper aims at providing new insights on these matters through a discussion of three specific cases, all from Europe, in which change has been very quick indeed: Wind energy in Denmark, the German Energiewende and electrical cars in Norway. The focus is particularly on the actors that took part, how policy schemes supporting these developments were shaped and what their impacts were. It is concluded that by embracing the opportunities offered by the renewable energy revolution and actively involving users (and attracting new ones) it is possible for policy-makers to encourage (green) innovation, create new jobs and significantly speed up the transition.
    Date: 2019–09
  6. By: Lorraine Conway (Infrastructure Victoria); David Prentice (Infrastructure Victoria)
    Abstract: In this paper we review studies to understand how much households change their electricity consumption when there is a price change. We are particularly focussed on finding results from econometric studies that estimate elasticities of demand. Many studies find residential households demonstrate responsiveness to price, with long term and short run elasticities behaving as economic theory would suggest. For instance, the elasticities are negative which means that as price increases, consumption decreases; long run elasticities are larger than shorter run elasticities which indicates that households can respond over time through investment in more energy efficient appliances; and very short run elasticities exist - while very short run elasticities are small, household responsiveness seems to increase when paired with technology. Long run elasticities range from -0.75 to -0.3 and short run elasticities range from -0.47 to -0.026. The major gaps in research from the empirical economics literature are how low income and vulnerable Australian households could be affected by price changes and how Australians respond to within-day variation in prices.
    Keywords: Electricity, Prices, Elasticity, Cost reflective pricing, Australia
    JEL: D12 L94 Q41 Q48
    Date: 2019–09–26
  7. 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
  8. By: Yukihiko Funaki (Waseda University); Harold Houba (Vrije Universiteit Amsterdam); Evgenia Motchenkova (Vrije Universiteit Amsterdam)
    Abstract: We develop a novel model of price-fee competition in bilateral oligopoly markets with non-expandable infrastructures and costly transportation. The model captures a variety of real market situations and it is the continuous quantity version of the assignment game with indivisible goods on a fixed network. We define and characterize stable market outcomes. Buyers exclusively trade with the supplier with whom they achieve maximal bilateral joint welfare at prices equal to marginal costs. Maximal fees and the suppliers' market power are restricted by the buyers' credible threats to switch suppliers. Maximal fees also arise from a negotiation model that extends price competition to price-fee competition. Competition in both prices and fees necessarily emerges. It improves welfare compared to price competition, but buyers will not be better off. The minimal infrastructure achieving maximal aggregate welfare differs from the minimal network that protects buyers most.
    Keywords: Assignment Games, Infrastructure, Non-linear pricing, Market Power, Negotiations
    JEL: D43 C78 L1
    Date: 2019–09–27
  9. By: D. Baiardi
    Abstract: Yes, they matter. To reply to this question, we assess the impact of energy efficiency and renewable energy policies on six different air pollutants: carbon dioxide (CO2), methane (CH4), nitrous oxides (N2O), non-methane volatile organic compounds (NMVOCs), nitrogen oxides (NOx) and sulphur dioxide (SO2) in the case of the Italian provinces in the decade 2005-2015. The empirical analysis is performed in a panel data context by means of propensity score matching with multiple treatment, since our framework is characterized by the presence of two treatments, corresponding to the two different energy policies analyzed, i.e. energy efficiency policy and renewable policy. These two policies can be applied by each province as mutually exclusive strategies or as joint strategies. Our results show that renewable policies are the most efficient in terms of climate goals especially when planned on a local scale, while energy efficiency policies alone are ineffective. Moreover, the success of these policies depends on the type of pollutant to be reduced. Finally, we note that the effect of these two policies was reinforced by the counter-cyclical fiscal policies implemented to contrast the Global Financial Crisis in 2008.
    Keywords: Textile exports, Outperformance, Displacement, Competitiveness, Cross-country comparisons, Panel data analysis
    JEL: C23 F14 L67
    Date: 2019
  10. By: Gunther Maier
    Abstract: The basic question of this paper is the following: 'Do energy efficient appartments generate higher rents for their owners than comparable appartments with lower levels of energy efficiency?' This is an important question for environmental policy because if it is ansered positively, it generates an economic incentive for landlords to invest into the energy efficiency of buildings. We use data from the EU-SILC survey for Austria and a hedonic price approach to determine the marginal rent of more energy efficiency (measured in the form of lower heating costs). In this paper we revisit a topic that we have already discussed in a presentation eight years ago. At that time the results were very disappointing. The analysis produced a significant coefficient but with the reverse than expected sign. In the meantime, more waves of the EU-SILC survey have become available and the pool of respondents has been turned over. This allows us to revisit this question and to produce an answer with more empirical support.
    Keywords: Energy Efficiency; hedonic price; housing
    JEL: R3
    Date: 2019–01–01
  11. By: Anna D'Annunzio; Mohammed Mardan; Antonio Russo
    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
  12. By: Goekce Akin-Olçum (Environmental Defense Fund, Boston, USA); Christoph Boehrinngerr (University of Oldenburg, Department of Economics); Thomas Rutherford (University of Wisconsin, Madison, USA); Andrew Schreiber (National Center for Environmental Economics, Washington, USA)
    Abstract: New York is considering additional emission regulation on top of its obligations under the Regional Greenhouse Gas Initiative (RGGI) to achieve its State Energy Plan targets. The proposed measure is a so-called “carbon adder” on CO2 emissions from the power sector which is set as the difference between the targeted social cost of carbon and the prevailing RGGI price for CO2 emission allowances. We investigate the potential economic and environmental impacts from the imposition of a carbon adder on New York’s power sector. While our analysis indicates the risk of excess cost through overlapping regulations, we find that the carbon adder gives the “right” price signal for New York’s power generation to turn into a greener one. Market requirements for permit price floors in the RGGI market induces carbon permit retirements across RGGI states leading to small reductions in region- and country-wide emissions levels.
    Keywords: Environmental regulation, overlapping regulation, emission taxes, emissions trading
    Date: 2019–09
  13. By: Kyle Meng (University of California, Santa Barbara and NBER)
    Abstract: How can an economy transition from dirty to clean inputs? When transitional dynamics exhibit strong path dependence, a temporary shock to input composition can trigger permanent structural change. This paper examines whether such dynamics characterize the U.S. energy sector’s use of coal - the most climate-damaging energy input - over the 20th century. Exploiting local coal transport distance shocks driven by the changing regional accessibility of subsurface coal resources, I find increasing imbalance in the coal composition of electricity capital lasting ten decades following a shock. Additional tests detect increasing returns to scale as the underlying mechanism. To inform energy transitions more broadly, I develop a model of scale-driven structural change to map reduced-form estimates onto a key parameter found across a class of structural change models. Calibrated model simulations further characterize conditions under which a temporary climate policy can trigger a permanent future transition towards clean energy.
    Date: 2019
  14. By: Kant, Chander
    Abstract: European ex-socialist countries’ experience is exploited for two difference-in-differences analysis: effects of a) transition to a market economy, and b) accession to the European Union (EU) on income. Many countries adopting regime change simultaneously; and ten of them joining the EU mostly in 2004 provides a rich setting. Post-privatization growth varies by ex-ante institutional settings - whether they existed as separate countries before 1991 or came into being by break-up of a larger block - and by ex-post aspiration of (and then) joining the EU. We show starkly how unsuccessful was transition to a market economy - it increased income gap of most of them from the US for at least 13 years. The paper shows institutions are important/critical for growth in middle- or high-income countries of Europe also; and better institutions enhance the role of one (rather than all) proximate factor for growth. Using growth accounting, the growth effects are mostly driven by human capital (rather than by TFP). This paper a) presents a nuanced perspective on privatization’s effect on growth, and b) identifies human capital to be the proximate factor through which the fundamental factor of institutions promotes growth.
    Keywords: Command economy and market economy; accession to the EU; income gaps and income ratios; institutions and middle/high income countries; growth accounting; fundamental versus proximate causes of growth; human capital versus TFP
    JEL: O47 O57
    Date: 2018–11–29
  15. By: Xintong Han (Concordia University, Department of Economics, 1455 Boulevard de Maisonneuve O, Montreal, QC H3G 1M8, Canada.); Pu Zhao (Boston University, Questrom School of Business, 595 Commonwealth Avenue, Boston, MA 02215, USA.)
    Abstract: In this paper, we use unique data from a popular Chinese content provision platform to examine three issues: first, content providers’ pricing strategies when each follower needs to pay an annual fee for access to content; second, content providers’ trade-offs between traffic and referral marketing expenses; and third, the effect of a platform policy on the welfare of content providers and their followers. We use a structural model for a content provider’s pricing and referral marketing decisions. The model estimates highlight the link between the referral effectiveness and potential revenue loss. Our counterfactual analysis shows vast difference in communities’ reactions towards increased platform commissions and potential homogeneity of content provision as well as huge demand loss beyond certain commission thresholds.
    Keywords: content pricing, referral marketing, platform policy, structural estimation
    JEL: L12 L14 L25 L51
    Date: 2019–09
  16. By: Etienne Billette de Villemeur; Annalisa Vinella
    Abstract: We consider a multi-service transportation system in which passengers are heterogeneous along two dimensions, namely ideal departure time and value of time, leading to both horizontal and vertical differentiation. We investigate the behavior of passengers, and assess how service pricing and scheduling affect their travel choices and welfare. We show that this depends, first, on whether passengers are uninformed or informed about the timetable of services, supplied at different prices, upon arrival at the station. Besides, given the information passengers hold, it also depends on their (individual-specific) value of time. The market segmentation results accordingly, and is found to be finer, in general, when passengers are informed. Our analysis offers policy-makers a scientifically founded tool to make sensible decisions, based on the exact identification of those who would gain and those who would lose from policy changes. The analysis further highlights the potential benefits of information, and points to the importance of facilitating information accessibility to passengers.
    Keywords: travel demand, service scheduling, market segmentation, targeted policy-making, impact of information
    JEL: D01 L91 L98
    Date: 2019
  17. By: Daniel Neuhann (UT Austin, McCombs School of Business); Michael Sockin (University of Texas at Austin)
    Abstract: We study investment and risk sharing in complete markets when agents internalize their impact on asset prices. Quantity shading of state-contingent claims by buyers and sellers generates excess exposure to idiosyncratic risk and low asset pledgeability. This depresses investment, the risk-free rate, and aggregate productivity. Rents from market power distort and misalign agents' marginal valuations of state-contingent returns, rendering risk-sharing constrained inefficient and \emph{as if} markets were competitive but incomplete. When there is limited commitment, sellers face borrowing constraints that limit their ability to strategically restrict supply, thereby reallocating market power to buyers. When markets are decentralized, agents distort investment to capture arbitrage profits by acting as pass-through intermediaries.
    Date: 2019
  18. By: Lana Friesen (School of Economics, The University of Queensland); Lata Gangadharan (Department of Economics, Monash University, Australia); Peyman Khezr (School of Economics, The University of Queensland); Ian A. MacKenzie (School of Economics, The University of Queensland)
    Abstract: This article investigates supply reserves in pollution permit auctions. A supply reserve is a fixed quantity of permits that is automatically released if the initial clearing price is sufficiently high. The main rationale for using such a reserve is for cost containment: to lower the final clearing price. We show the inclusion of a reserve does exactly the opposite and provide corroborating experimental evidence. Relative to a benchmark without a supply reserve, we find that the introduction of a supply reserve will actually increase the clearing price, increase the revenue from the auction, and increase auction efficiency. The clearing price also increases in the level of the trigger price and relative size of the reserve. This has important implications for supply reserves currently in use, such as the Cost Containment Reserve (CCR) within the US Regional Greenhouse Gas Initiative (RGGI)
    Keywords: multi-unit auction; uniform-price; supply reserve, pollution permits, experiment.
    JEL: C91 C92 Q58
    Date: 2019–09–20
  19. By: Shaheen, Susan PhD; Martin, Elliot
    Keywords: Social and Behavioral Sciences
    Date: 2019–10–03
  20. By: Matthias Breuer; Christian Leuz; Steven Vanhaverbeke
    Abstract: We investigate the impact of reporting regulation on corporate innovation activity. Exploiting thresholds in Europe’s regulation and a major enforcement reform in Germany, we find that forcing a greater share of firms to publicly disclose their financial statements reduces firms’ innovative activities at the industry level. At the same time, it increases firms’ reliance on patenting to protect their innovations, to the extent they continue innovating. Our evidence is consistent with reporting mandates having significant real effects by imposing proprietary costs on innovative firms, which diminishes their incentives to engage in innovative activities. Importantly, we examine and find that this decline in innovative activity is not fully compensated by positive information spillovers (e.g., to competitors, suppliers, and customers) within industries. Thus, our evidence implies that proprietary costs induced by reporting mandates are important consideration for regulators and policy makers.
    JEL: K22 L51 M41 M48 O43 O47
    Date: 2019–09
  21. By: Sergei Guriev (Département d'économie); Nikita Melnikov (Higher School of Economics (HSE)); Ekaterina Zhuravskaya (Ecole d'Économie de Paris - Paris School of Economics)
    Abstract: How does the internet affect government approval? Using surveys of 840,537 individuals from 2,232 subnational regions in 116 countries in 2008-2017 from the Gallup World Poll and the global expansion of 3G networks, we show that an increase in internet access reduces government approval and increases the perception of corruption in government. This effect is present only when the internet is not censored and is stronger when traditional media is censored. Actual incidents of corruption translate into higher corruption perception only in places covered by 3G. In Europe, the expansion of mobile internet increased vote shares of anti-establishment populist parties.
    Keywords: Government Approval; 3G; Mobile; Internet; Corruption; Populism
    Date: 2019–06
  22. By: Nicole Adler; Eef Delhaye; Adit Kivel; Stef Proost
    Abstract: The ownership form of Air Navigation Service Providers varies across countries ranging from state agencies belonging to the Department of Transport, to government-owned corporations, to semi-private firms with for-profit or not-for-profit mandates. This research focusses on the link between the performance of ANSPs and their ownership form. A theoretical economic model suggests that effort to achieve cost efficiency will be higher in the case of public companies with a board of stakeholders composed of airspace users and in the case of private companies in which stakeholders are also shareholders. A stochastic frontier analysis estimation of the production and cost functions of 37 European air navigation service providers over nine years suggests that the public-private ownership form achieves statistically significantly higher cost and productive efficiency levels compared to either a government corporation or a state agency.
    Date: 2017–12
  23. By: Anita M. Bunea; Pietro Manfredi; Pompeo Della Posta; Mariangela Guidolin
    Abstract: The paper uses diffusion models to understand the main determinants of diffusion of solar photovoltaic panels (SPP) worldwide, focusing on the role of public incentives. We applied the generalized Bass model (GBM) to adoption data of 26 countries between 1992-2016. The SPP market appears as a frail and complicate one, lacking public media support. Even the major shocks in adoption curves, following state incentive implemented after 2006, failed to go beyond short-term effects and therefore were unable to provide sustained momentum to the market. This suggests that further barriers to adoption should be removed.
    Date: 2019–09

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