nep-reg New Economics Papers
on Regulation
Issue of 2021‒08‒09
eighteen papers chosen by
Christopher Decker
Oxford University

  1. Designing efficient Renewable Electricity Support Schemes By Newbery, D.
  2. The regulation of interconnection and regulatory alignment in the Southern African Development Community By Grace Nsomba
  3. Increasing Block Rate Electricity Pricing and Propensity to Purchase Electric Appliances: Evidence from a Natural Experiment By Salim Turdaliev
  4. Informal employment or informal firms? Regulatory enforcement and the transformation of the informal sector By Sanjay Jain
  5. Inattention vs switching costs: An analysis of consumers' inaction in choosing a water tariff By Heiss, Florian; Ornaghi, Carmine; Tonin, Mirco
  6. Sentiment and uncertainty about regulation By Tara M. Sinclair; Zhoudan Xie
  7. Co-optimization of Energy and Reserve with Incentives to Wind Generation: Case Study By Yves Smeers; Sebastian Martin; Jose A. Aguado
  8. “An Elephants’ Graveyard”: the Deregulation of American Industry in the Late Twentieth Century By Richard N. Langlois
  9. Information Nudges and Self-Control By Thomas Mariotti; Nikolaus Schweizer; Nora Szech; Jonas von Wangenheim
  10. The Positive Case for a CBDC By Andrew Usher; Edona Reshidi; Francisco Rivadeneyra; Scott Hendry
  11. Vulnerable households and fuel poverty: policy targeting efficiency in Australia’s National Electricity Market By Simshauser, P.
  12. Where are Used Electric Vehicles and Who are the Buyers? By Tal, Gil; Lee, Jae H; Chakraborty, Debapriya; Davis, Adam
  13. Cost dynamics of clean energy technologies By Glenk, Gunther; Meier, Rebecca; Reichelstein, Stefan
  14. Renegotiation and discrimination in symmetric procurement auctions By Leandro Arozamena; Juan José Ganuza; Federico Weinschelbaum
  15. Concentration, Retail Markups, and Countervailing Power: Evidence from Retail Lotteries By Giroldo, Renato; Hollenbeck, Brett
  16. Making life richer, easier and healthier: Robots, their future and the roles for public policy By Alistair Nolan
  17. Strategic Pricing and Ratings By Anton Sobolev; Konrad Stahl; André Stenzel; Christoph Wolf
  18. A Nudge to Quit? The Effect of a Change in Pension Information on Annuitization, Labour Supply, and Retirement Choices Among Older Workers By Hagen, Johannes; Hallberg, Daniel; Sjögren Lindquist, Gabriella

  1. By: Newbery, D.
    Abstract: Most existing renewables support schemes distort location and dispatch decisions. Many impose unnecessary risk on developers, increasing support costs. Efficient policy sets the right carbon price, supports capacity not output, ensures efficient dispatch and location. The EU bans priority dispatch and requires market-based bidding, but does not address the underlying problem that payment is conditional on generation, amplifying incentives to locate in high resource sites. This article identifies the various distortions and proposes an auctioned contract to address location and dispatch distortions: a financial Contract for Difference (CfD) with hourly contracted volume proportional to local renewable output/MW, with a life specified in MWh/MW, adjusted for regional variations in correlation with total renewable output. This yardstick CfD delivers efficient dispatch while assuring but limiting the total amount of subsidy and not over-compensating high resource sites. The revenue assurance, with a government-backed counterparty, allows high debt:equity, dramatically lowering the subsidy cost.
    Keywords: renewables support schemes, distortions, auctions, yardstick contracts
    JEL: D44 D62 D86 H23 H25 L94 Q28 Q42 Q48
    Date: 2021–03–23
  2. By: Grace Nsomba
    Abstract: This paper analyses interconnection in telecommunications markets in the Southern African Development Community (SADC) region, focusing on cross-border roaming as well as international interconnection. These issues have been identified as critical for cross-border integration and regulatory alignment. The paper argues for a greater alignment of regulatory approaches across the SADC region to promote competition, lower prices, and innovation.
    Keywords: Southern African Development Community, Competition, Regulation, Telecommunication
    Date: 2021
  3. By: Salim Turdaliev (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: This paper provides empirical evidence on the relationship between increasing-block-rate (IBR) pricing of electricity and the propensity of households to buy major electric appliances. I use variation from a natural experiment in Russia that introduced IBR pricing for residential electricity in a number of experimental regions in 2013. The study employs household-level panel data which records, among others, whether the household has purchased any major electric appliances during the last 3 months. Using difference-in-differences specification I show that in the regions with IBR pricing the purchase of major electric appliances has increased by more than 25 percent (2 percentage points). The findings suggest that price-based energy policies may be an effective tool in shaping the behavior of households.
    Keywords: appliances, increasing-block-rate tariff, electricity prices, energy efficiency gap
    JEL: Q3 Q4 D1 D9
    Date: 2021–07
  4. By: Sanjay Jain
    Abstract: While there is general agreement that regulatory avoidance is an important part of firms' decisions to produce in the informal sector, there is much less agreement on how regulation and enforcement affect firms' decisions on, inter alia, which sector they locate in, their employment decisions, and whether to transition from one sector to another. In this paper, we focus on this set of questions: how does the regulatory regime affect these sectoral location decisions by firms?
    Keywords: Informal sector, Regulation, Spillovers, Informal work, Regulatory, Output
    Date: 2021
  5. By: Heiss, Florian; Ornaghi, Carmine; Tonin, Mirco
    Abstract: This paper studies consumers' choice between two different water tariffs. We document a large inaction in a novel setting where customers face a binary decision and receive simple, detailed and personalized information about the financial savings they would obtain if they were to switch water tariff. Our empirical framework separates two sources of inertia: inattention and switching costs. The model estimates that half of the 50 thousand customers in our sample are not aware of the opportunity they are offered and that, conditional on paying attention, median switching costs are £89. A model where all customers are assumed to pay attention instead delivers implausibly high switching costs, with a median of £482. Looking at the characteristics of the households, our results confirm previous findings that areas where households have higher levels of education or the proportion of minorities is lower, display a higher responsiveness to potential savings. The new insight offered by our analysis is that it is the level of attention, and not the switching costs, that differ across levels of education and ethnicity. Our findings suggest that policies aimed at increasing attention can play a central role in fostering competition among suppliers and reducing inequalities.
    Keywords: inattention,switching costs,tariffs,water
    JEL: D12 L95 Q25
    Date: 2021
  6. By: Tara M. Sinclair; Zhoudan Xie
    Abstract: Regulatory policy can create economic and social benefits, but poorly designed or excessive regulation may generate substantial adverse effects on the economy. In this paper, we present measures of sentiment and uncertainty about regulation in the U.S. over time and examine their relationships with macroeconomic performance. We construct the measures using lexicon-based sentiment analysis of an original news corpus, which covers 493,418 news articles related to regulation from seven leading U.S. newspapers. As a result, we build monthly indexes of sentiment and uncertainty about regulation and categorical indexes for 14 regulatory policy areas from January 1985 to August 2020. Impulse response functions indicate that a negative shock to sentiment about regulation is associated with large, persistent drops in future output and employment, while increased regulatory uncertainty overall reduces output and employment temporarily. These results suggest that sentiment about regulation plays a more important economic role than uncertainty about regulation. Furthermore, economic outcomes are particularly sensitive to sentiment around transportation regulation and to uncertainty around labor regulation.
    Keywords: Regulation, text analysis, NLP, sentiment analysis, uncertainty
    Date: 2021–07
  7. By: Yves Smeers; Sebastian Martin; Jose A. Aguado
    Abstract: This case study presents an analysis and quantification of the impact of the lack of co-optimization of energy and reserve in the presence of high penetration of wind energy. The methodology is developed in a companion paper, Part I. Two models, with and without co-optimization are confronted. The modeling of reserve and the incentive to renewable as well as the calibration of the model are inspired by the Spanish market. A sensitivity analysis is performed on configurations that differ by generation capacity, ramping capability, and market parameters (available wind, Feed in Premium to wind, generators risk aversion, and reserve requirement). The models and the case study are purely illustrative but the methodology is general.
    Date: 2021–07
  8. By: Richard N. Langlois (University of Connecticut)
    Abstract: This paper is an excerpt from a larger book project called The Corporation and the Twentieth Century, which chronicles and interprets the institutional and economic history – the life and times, if you will – of American business in the twentieth century. This excerpt examines the era of industrial deregulation of the late twentieth century. As had been the case with financial deregulation, it argues, industrial deregulation and the internationalization of trade were largely a manifestation of the misalignment of the postwar regulatory regime with the realities of economic growth. This misalignment created profit opportunities for entrepreneurs not only in the realm of technology but also, and perhaps more crucially, in the realm of institutions. In some cases, entrepreneurs would expend resources in order to foment political change. In other cases, technological and institutional innovation, aided at times by the depredations of the regulation itself, would so reduce the available rents of a regulatory regime that its supporting coalition would collapse
    Keywords: Deregulation; institutional innovation; technological change; antitrust
    JEL: D23 K21 L4 L51 L52 L6 L9 N42 N62 N72 N82 O3 P12 P P16
    Date: 2021–07
  9. By: Thomas Mariotti; Nikolaus Schweizer; Nora Szech; Jonas von Wangenheim
    Abstract: We study the optimal design of information nudges for present-biased consumers who make sequential consumption decisions without exact prior knowledge of their long-term consequences. For any distribution of risks, there exists a consumer-optimal information nudge that is of cutoff type, recommending abstinence if the risk is high enough. Depending on the distribution of risks, more or less consumers have to be sacrificed, as they cannot be credibly warned even though they would like to be. Under a stronger bias for the present, the target group receiving a credible warning to abstain must be tightened, but this need not increase the probability of harmful consumption. If some consumers are more strongly present-biased than others, traffic-light nudges turn out to be optimal and, when subgroups of consumers differ sufficiently, the optimal traffic-light nudge is also subgroup-optimal. We finally compare the consumer-optimal nudge with those a health authority or a lobbyist would favor.
    Keywords: Nudges, Information Design, Present-Biased Preferences, Self-Control
    JEL: C73 D82
    Date: 2021–07
  10. By: Andrew Usher; Edona Reshidi; Francisco Rivadeneyra; Scott Hendry
    Abstract: In this paper we discuss the competition and innovation arguments for issuing a central bank digital currency (CBDC). A CBDC could be an effective competition policy tool for payments. On innovation, we argue that a CBDC could be necessary to support the vibrancy of the digital economy by helping solve market failures and fostering competition and innovation in new digital payments markets. Overall, competition and innovation are supporting arguments for issuing a CBDC.
    Keywords: Digital currencies and fintech; Financial institutions; Financial stability
    JEL: E58 L5
    Date: 2021–07
  11. By: Simshauser, P.
    Abstract: When Australia established its National Electricity Market (NEM) during the 1990s, reforms were focused on maximising economic efficiency. Little thought was given to distributional outcomes. However, by the 2010s sluggish growth in household incomes, sharp rises in electricity prices and material increases in quantities consumed through surging uptake rates of air-conditioning units led to the possibility of (hot climate) fuel poverty. In the NEM’s Queensland region, longstanding customer hardship policy pre-dated the NEM. With the benefit of hindsight, the policy was poorly configured as it focused exclusively on the aged population and was delivered by way of fixed payment. Low income households in the family formation cohort were excluded from the policy despite obvious need. In this article, Queensland’s longstanding customer hardship policy is refined using pre-existing (meanstested) welfare mechanisms in order to target low income households including families, and the payment structure is altered from fixed ($ pa) to variable (% of the bill) while holding the budget constraint constant. Changes to policy targeting produce material improvements in horizontal and vertical efficiency while changes to payment structure further enhance vertical performance, with the incidence and depth of residual fuel poverty reduced.
    Keywords: Energy Affordability, Fuel Poverty, Policy Targeting, Targeting Efficiency, Customer Hardship Policy
    JEL: D25 D80 G32 L51 Q41
    Date: 2021–03–29
  12. By: Tal, Gil; Lee, Jae H; Chakraborty, Debapriya; Davis, Adam
    Abstract: Very little research has been conducted on the second (and third, and thereafter) owners of new technologies. For light duty vehicles, the research has been focused on the first owners. In the case of plug-in electric vehicles (PEVs), understanding the secondary market is especially important for many reasons, including the vehicle market development and on-road usage. The second owner is also an adopter of new technology, many times taking greater risk than the original owner by purchasing a vehicle close to, or after, the end of the warranty. Data on vehicle ownership at the zip code level was used to explore the total number of vehicles, the number of electric vehicles (EVs) owned by the original owner, and the number of EVs owned by a second or third owner. Results suggest that in areas with few EVs overall, used PEVs make up a higher share of all PEVs, but a lower share of all vehicles. Used PEVs are slightly less spatially concentrated than new ones, possibly because of a weaker neighborhood effect and possibly because their lower cost makes them accessible to slightly more people. The study finds that at least in this phase of the market development, used PEVs are not trickling down at a high rate, but more research is needed to evaluate the reasons for this phenomenon. Policies that focus on the progression of used PEVs to secondary owners by improving the information provided to used car buyers, reducing the risk of purchasing a new technology, improving the availability of charging, and addressing other barriers, can help communities with low rates of PEV adoption and improve the market growth in the future. View the NCST Project Webpage
    Keywords: Engineering, Social and Behavioral Sciences, Plug-in electric vehicles, travel behavior, consumers, markets, infrastructure, used electric vehicles, previously-owned vehicles
    Date: 2021–07–01
  13. By: Glenk, Gunther; Meier, Rebecca; Reichelstein, Stefan
    Abstract: The pace of the global decarbonization process is widely believed to hinge on the rate of cost improvements for clean energy technologies, in particular renewable power and energy storage. This paper adopts the classical learning-by-doing framework of Wright (1936), which predicts that cost will fall as a function of the cumulative volume of past deployments. We first examine the learning curves for solar photovoltaic modules, wind turbines and electrolyzers. These estimates then become the basis for estimating the dynamics of the life-cycle cost of generating the corresponding clean energy, i.e., electricity from solar and wind power as well as hydrogen. Our calculations point to significant and sustained learning curves, which, in some contexts, predict a much more rapid cost decline than suggested by the traditional 80% learning curve. Finally, we argue that the observed learning curves for individual clean energy technologies reinforce each other in advancing the transition to a decarbonized energy economy.
    Keywords: learning-by-doing,renewable energy,energy storage,electrolysis,levelized cost of energy
    Date: 2021
  14. By: Leandro Arozamena; Juan José Ganuza; Federico Weinschelbaum
    Abstract: In order to make competition open, fair and transparent, procurement regulations often require equal treatment for all bidders. This paper shows how a favorite supplier can be treated preferentially (opening the door to home bias and corruption) even when explicit discrimination is not allowed. We analyze a procurement setting in which the optimal design of the project to be contracted is unknown. The sponsor has to invest in specifying the project. The larger the investment, the higher the probability that the initial design is optimal. When it is not, a bargaining process between the winning firm and the sponsor takes place. Profits from bargaining are larger for the favorite supplier than for its rivals. Given this comparative advantage, the favored firm bids more aggressively and then, it wins more often than standard firms. Finally, we show that the sponsor invests less in specifying the initial design, when favoritism is stronger. Underinvestment in design specification is a tool for providing a comparative advantage to the favored firm.
    Keywords: auctions, favoritism, auction design, renegotiation, corruption
    JEL: I12 J13 H31 H24
    Date: 2021–07
  15. By: Giroldo, Renato; Hollenbeck, Brett
    Abstract: In this note, we investigate the causal link between market concentration and markups in a retail setting. We study the Washington retail cannabis industry, which features exogenous variation in market concentration that resulted from retail licenses being awarded via lotteries. We observe markups directly. We find a negative causal relationship between markups and concentration, where more concentrated markets have significantly lower markups and wholesale prices. The results provide direct evidence of countervailing buyer power by retailers. These results highlight the value of using industry specific data and rich models of competition to advance the debate on concentration and markups.
    Keywords: markups, market concentration, retail, countervailing buyer power, cannabis policy
    JEL: E20 L13 L16 L22 L41 L81 M31 R12 R32
    Date: 2021–07–31
  16. By: Alistair Nolan
    Abstract: This paper addresses the current and emerging uses and impacts of robots, the mid-term future of robotics and the role of policy. Progress in robotics will help to make life easier, richer and healthier. Wider robot use will help raise labour productivity. As science and engineering progress, robots will become more central to crisis response, from helping combat infectious diseases to maintaining critical infrastructure. Governments can accelerate and orient the development and uptake of socially valuable robots, for instance by: supporting cross-disciplinary R&D, facilitating research commercialisation, helping small and medium-size enterprises (SMEs) understand the opportunities for investment in robots, supporting platforms that highlight robot solutions in healthcare and other sectors, embedding robotics engineering in high school curricula, tailoring training for workers with vocational-level mechanical skills, supporting data development useful to robotics, ensuring flexible regulation conducive to innovation, strengthening digital connectivity, and raising awareness of the importance of robotics.
    Date: 2021–07–29
  17. By: Anton Sobolev; Konrad Stahl; André Stenzel; Christoph Wolf
    Abstract: A seller serving two generations of short lived heterogeneous consumers sells a product under uncertain demand. We characterize the seller's optimal pricing, taking into account that the current period's price affects the information transmission to the next period consumers via consumer ratings. While the seller always prefers to generate more information, it is not necessarily in the consumers' interest. We characterize situations in which consumer surplus and welfare are decreasing in additional information. We provide conditions under which aggregate consumer surplus and welfare are lower with than without a rating system.
    Keywords: Online Markets, Rating, Reputation
    JEL: D83 L12 L13 L81
    Date: 2021–07
  18. By: Hagen, Johannes; Hallberg, Daniel; Sjögren Lindquist, Gabriella
    Abstract: We study the effects of two exogenous modifications in the Swedish pension system application form nudging individuals towards a fixed-term payout. Meanwhile, the set of available options and the default option - life annuity - were unchanged during the period under study. We examine the effects on individuals' payout decisions and the spillover effects on labour supply and other pensions using a difference-in-difference framework and detailed administrative data on actual payout decisions and a wide range of individual-level outcomes. Each modification increased the demand for the nudged payout by around 30 percentage points. The first modification also induced individuals to work less.
    Keywords: annuity,pension,nudge,decision framing
    JEL: D91 G41 J26 J32
    Date: 2021

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