nep-reg New Economics Papers
on Regulation
Issue of 2022‒01‒03
fifteen papers chosen by
Christopher Decker
Oxford University

  1. Railways as Patient Capital By Oliver Lewis; Avner Offer
  2. Price-cost Margins and Fixed Costs By Filip Abraham; Yannick Bormans; Jozef Konings; Werner Roeger
  3. On the role of risk aversion and market design in capacity expansion planning By Fraunholz, Christoph; Miskiw, Kim K.; Kraft, Emil; Fichtner, Wolf; Weber, Christoph
  4. The Elasticity of Electricity Demand and Carbon Emissions Reductions in the Residential Sector: Evidence from a Tariff Shift in Russia By Salim Turdaliev
  5. The impact of transparency policies on local flexibility markets in electrical distribution networks: A case study with artificial neural network forecasts By Erik Heilmann
  6. Expanding the UC Davis GIS Electric Vehicle Planning Toolbox Beyond California By Tal, Gil; Lee, Jae Hyun; Ji, Wei; Davis, Adam
  7. Do price reductions attract customers in urban public transport? A synthetic control approach By Hannes Wallimann; Kevin Bl\"attler; Widar von Arx
  8. Does greater discretion improve the performance in the execution of public works? Evidence from the reform of discretionary thresholds in Italy By Finocchiaro Castro, Massimo; Guccio, Calogero
  9. Does Board Overlap Promote Coordination Between Firms? By Heng Geng; Harald Hau; Roni Michaely; Binh Nguyen
  10. Market concentration, supply, quality and prices paid by local authorities in the English care home market By Espuny Pujol, Ferran; Hancock, Ruth; Hviid, Morten; Morciano, Marcello; Pudney, Stephen
  11. Optimal bidding strategies for digital advertising By Médéric Motte; Huyên Pham
  12. Hub-and-spoke cartels: Theory and evidence from the grocery industry By Robert Clark; Ig Horstmann; Jean-Francois Houde
  13. An updated OECD framework on drivers of trust in public institutions to meet current and future challenges By Monica Brezzi; Santiago González; David Nguyen; Mariana Prats
  14. Poor Substitutes? Counterfactual methods in IO and Trade compared By Keith Head; Thierry Mayer
  15. Collusion in the US Generic Drug Industry By Robert Clark; Christopher Anthony Fabiilli; Laura Lasio

  1. By: Oliver Lewis; Avner Offer
    Abstract: Why are railways mostly in the public sector? Interest rates define a time limit for markets. Projects with longer break-evens cannot be funded by business alone. Corporate ‘franchise’ arrangements overcome the limit by means of revenue guarantees which transfer risks to government. Innovations originate bottom-up in private enterprise. Positive externalities create demand for universal provision but scaling up cannot be financed commercially. In the British railway manias of the 1830s and 1840s speculative fever overwhelmed prudence. Overinvestment left an excessive infrastructure legacy and wiped out windfall profits. In other countries railways required external support. Expanding access give rise to stand-offs with investors which ended up in government regulation or takeover. The tramway boom of 1870 to 1914 followed this pattern, initially with horse power and then electricity. In the UK railway privatisation of the 1990s, the free market delusion was confounded by the infrastructure requirement for long-term commitment.
    Keywords: Railroads, privatisation, project evaluation, public services, scope of government
    Date: 2021–05–01
  2. By: Filip Abraham; Yannick Bormans; Jozef Konings; Werner Roeger
    Date: 2021–12–09
  3. By: Fraunholz, Christoph; Miskiw, Kim K.; Kraft, Emil; Fichtner, Wolf; Weber, Christoph
    Abstract: Investment decisions in competitive power markets are based upon thorough profitability assessments. Thereby, investors typically show a high degree of risk aversion, which is the main argument for capacity mechanisms being implemented around the world. In order to investigate the interdependencies between investors' risk aversion and market design, we extend the agent-based electricity market model PowerACE to account for long-term uncertainties. This allows us to model capacity expansion planning from an agent perspective and with different risk preferences. The enhanced model is then applied in a multi-country case study of the European electricity market. Our results show that assuming risk-averse rather than risk-neutral investors leads to slightly reduced investments in dispatchable capacity, higher wholesale electricity prices, and reduced levels of resource adequacy. These effects are more pronounced in an energy-only market than under a capacity mechanism. Moreover, uncoordinated changes in market design may also lead to negative cross-border effects.
    Keywords: Agent-based simulation,Capacity expansion planning,Risk aversion,Electricity market design,Energy-only market,Capacity mechanism
    Date: 2021
  4. By: Salim Turdaliev (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)
    Abstract: In this paper, I estimate the price elasticity of residential electricity demand using household-level panel data for Russia. The study takes advantage of the variation in tariffs across regions and over time, as well as the introduction of increasing block rate (IBR) tariff schemes in a number of regions. I show that in those regions consumers appear to be aware of the block cut-offs, even though the latter are household and dwelling-specific, to the point that there are a total of 35 different tier cut-offs. Based on these results, I estimate the price elasticity of electricity demand to be around -0.09. I also predict the associated changes in electricity consumption, CO2 emissions, and revenues if similar IBR policies are implemented countrywide.
    Keywords: residential electricity demand, transition economy, natural experiment, increasing block rates, attentiveness, CO2 emissions
    JEL: Q41 Q48 L98 L94
    Date: 2021–12
  5. By: Erik Heilmann (University of Kassel)
    Abstract: The energy transition brings various challenges of technical, economic and organizational nature. One major topic, especially in zonal electricity systems, is the organization of future congestion management. Local flexibility market (LFM) is an often discussed concept of market-based congestion management. Similar to the whole energy system, the market transparency of LFMs can influence the individual bidders' behavior. In this context, the predictability of the network status and an LFM's outcome, depending on a given transparency policy, is investigated in this paper. For this, forecast models based on artificial neural networks (ANN) are implemented on synthetical network and LFM data. Three defined transparency policies determine the amount of input data used for the models. The results suggest that the transparency policy can influence the predictability of network status and LFM outcome, but appropriate forecasts are generally feasible. Therefore, the transparency policy should not conceal information but provide a level playing field for all parties involved. The provision of semi-disaggregated data on the network area level can be suitable for bidders' decision making and reduces transaction costs.
    Keywords: Local flexibility markets, Market transparency, Transparency policy, Artificial neural network forecast
    JEL: L94 L98 Q41 Q47
    Date: 2021
  6. By: Tal, Gil; Lee, Jae Hyun; Ji, Wei; Davis, Adam
    Abstract: Plug-in electric vehicles (EVs) are quickly moving to the broader consumer market. While the home is still the primary location for recharging these vehicles, public EV charging infrastructure at workplaces, public destinations, and along travel corridors will be critical for the continued market growth of EVs. Governments will need to ensure that sufficient charging infrastructure is available at these locations to meet future demand. Researchers at the University of California, Davis Plug-In Hybrid & Electric Vehicle Research Center previously developed a planning toolbox for public charging infrastructure based on data available in California. The toolbox is a user-friendly set of modeling tools that allows planners to anticipate the future geographic distribution of EVs and the resulting optimal locations of charging infrastructure. To date, however, the tools have only been applied in California contexts with California-specific data. For this project, the UC Davis researchers adapted the toolbox to be used outside of California, collaborating with the Delaware Valley Regional Planning Commission to develop a case study for using this toolbox for EV infrastructure planning in the Greater Philadelphia region. This policy brief summarizes the findings from that research and provides policy implications. View the NCST Project Webpage
    Keywords: Engineering, Electric vehicle charging, Electric vehicles, Forecasting, Geographic information systems, Location, Regional planning
    Date: 2021–12–01
  7. By: Hannes Wallimann; Kevin Bl\"attler; Widar von Arx
    Abstract: In this paper, we assess the demand effects of lower public transport fares in Geneva, an urban area in Switzerland. Considering a unique sample based on transport companies' annual reports, we find that, when reducing the costs of annual season tickets, day tickets and short-distance tickets (by up to 29%, 6% and 20%, respectively), demand increases by, on average, about 13%. However, we also show that the effect of the policy intervention did not occur immediately after the price reduction. To the best of our knowledge, we are the first to show how the synthetic control method (Abadie and Gardeazabal, 2003, Abadie, Diamond, and Hainmueller, 2010) can be used to assess such (for policy-makers) important price reduction effects in urban public transport. To assess the demand effects, we propose an aggregate metric that inherits extensions of networks, namely passenger trips per vehicle kilometre. Therefore, we can isolate the impact of price reductions, ensuring that companies' network extensions do not affect estimators of interest. In addition, we show how to investigate the robustness of results in similar settings using recent statistical methods and different study designs. Finally, as far as we know, it is the first causal estimate of price reduction on urban public transport initiated by direct democracy.
    Date: 2021–11
  8. By: Finocchiaro Castro, Massimo; Guccio, Calogero
    Abstract: In this work, adopting a semi-parametric approach and a quasi-experiment setting, we empirically assess the effects of a reform of public procurement regulation in Italy, approved in 2011, that increased the discretion of bureaucrats in selecting the procurer. To this end, employing a large dataset of public works managed by Italian municipalities in the period 2009-2013, we first estimate contract execution performance; then, we test the impact of the reform on the efficiency of public works execution in an institutional context characterized by large differences in social capital and trust in institutions. The results provide evidence that the reform exerted a positive, albeit small, effect on public works execution performance. However, the beneficial role exerted by increased discretion is positive and significant only in those areas where social capital and trust in institutions have reached higher levels. These results seem to suggest that more discretion leads to greater efficiency but also to greater corruption risks suggesting that increased discretion must be balanced by strengthened ex-post controls, particularly in high-risk areas.
    Keywords: Bureaucratic discretion,Social capital,Corruption,Public works contracts,Efficiency,Non-parametric frontier,Semi-parametric methods
    JEL: D24 D73 H57 P16
    Date: 2021
  9. By: Heng Geng (Victoria University of Wellington); Harald Hau (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)); Roni Michaely (The University of Hong Kong; ECGI); Binh Nguyen (Victoria University of Wellington - Victoria University of Wellington, Students)
    Abstract: We investigate how board overlap affects coordination and performance among public firms. Our identification exploits the staggered introduction of Corporate OpportunityWaivers (COWs) in nine U.S. states since 2000. By reducing legal risk to directors serving on multiple boards, the COW legislation increased intra-industry board overlap for those firms that benefit most from the information flow facilitated by board overlap. We find that more board overlap improves firm profitability but also reduces investment, product overlap, and innovation. Our findings support the notion that board overlap curtails firm rivalry.
    Keywords: Board overlap, corporate opportunity waivers, firm coordination, market power
    JEL: G30 G38 K21 K22
    Date: 2021–11
  10. By: Espuny Pujol, Ferran; Hancock, Ruth; Hviid, Morten; Morciano, Marcello; Pudney, Stephen
    Abstract: We investigate the impact of exogenous local conditions which favor high market concentration on supply, price and quality in local markets for care homes for older people in England. We extend the existing literature in: (i) considering supply capacity as a market outcome alongside price and quality; (ii) taking account of the chain structure of care home supply and differences between the nursing home and residential care home sectors; (iii) using an econometric approach based on reduced form relationships that treats market concentration as a jointly determined outcome of a complex market. We find that areas susceptible to a high degree of market concentration tend to have greatly restricted supply of care home places and (to a lesser extent) a higher average public cost, than areas susceptible to low degree of market concentration. There is no significant evidence that conditions favoring high market concentration affect average care home quality.
    Keywords: care homes; market concentration; price; quality; supply; ES/L009153/1; ES/L011859/1; NIHR Applied Research Collaboration for Greater Manchester
    JEL: N0 L81
    Date: 2021–08–01
  11. By: Médéric Motte (LPSM (UMR_8001) - Laboratoire de Probabilités, Statistiques et Modélisations - UPD7 - Université Paris Diderot - Paris 7 - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique); Huyên Pham (LPSM (UMR_8001) - Laboratoire de Probabilités, Statistiques et Modélisations - UPD7 - Université Paris Diderot - Paris 7 - SU - Sorbonne Université - CNRS - Centre National de la Recherche Scientifique)
    Abstract: With the emergence of new online channels and information technology, digital advertising tends to substitute more and more to traditional advertising by offering the opportunity to companies to target the consumers/users that are really interested by their products or services. We introduce a novel framework for the study of optimal bidding strategies associated to different types of advertising, namely, commercial advertising for triggering purchases or subscriptions, and social marketing for alerting population about unhealthy behaviours (anti-drug, vaccination, road-safety campaigns). Our continuoustime models are based on a common framework encoding users online behaviours via their web-browsing at random times, and the targeted advertising auction mechanism widely used on Internet, the objective being to efficiently diffuse advertising information by means of digital channels. Our main results are to provide semi-explicit formulas for the optimal value and bidding policy for each of these problems. We show some sensitivity properties of the solution with respect to model parameters, and analyse how the different sources of digital information accessible to users including the social interactions affect the optimal bid for advertising auctions. We also study how to efficiently combine targeted advertising and non-targeted advertising mechanisms. Finally, some classes of examples with fully explicit formulas are derived.
    Keywords: Bid optimisation,auction,targeted advertising,digital information,Point processes,martingale techniques JEL Classification: C70,C61 MSC Classification: 91B26,90B60,60G55
    Date: 2021–11–15
  12. By: Robert Clark (Queen's University); Ig Horstmann (Rotman School of Management); Jean-Francois Houde (University of Wisconsin-Madison and NBER)
    Abstract: Numerous recently uncovered cartels operated along the supply chain, with firms at one end facilitating collusion at the other { hub-and-spoke arrangements. These cartels are hard to rationalize because they induce double marginalization and higher costs. We examine Canada's alleged bread cartel and provide the first comprehensive analysis of hub-and-spoke collusion. We make three contributions: i) Using court documents and pricing data we provide evidencethat collusion existed at both ends of the supply chain, ii) we show that collusion was effective, increasing inflation by about 40% and iii) we provide a model explaining why this form of collusion arose.
    Keywords: antitrust, vertical collusion, grocery industry
    JEL: L41 L44 L12 L13 D22 L66
    Date: 2021–09
  13. By: Monica Brezzi; Santiago González; David Nguyen; Mariana Prats
    Abstract: Trust between citizens and their governments is crucial for the legitimacy and functioning of democracies. This paper discusses the main determinants of people’s trust in public institutions and their measurement, in times of crisis as well as for a long-term, strong, inclusive and green recovery. It presents evidence on the great variation in the levels and drivers of trust across public institutions, across levels of government within countries, and among population groups. It also identifies three main trust challenges for public governance that were heightened by the COVID-19 crisis: i) people’s views on the credibility and effectiveness of government action on intergenerational and often global challenges; ii) the changes in political participation and political attitudes; and iii) an increasing distrust of and disengagement from democratic processes. Building on previous OECD work, and taking into account lessons from other crises and handling of the COVID-19 pandemic, the paper introduces a revised and expanded version of the OECD Framework on Drivers of Trust in Public Institutions. Furthermore, it discusses how this Framework is applied in the OECD Trust Survey. Both the Framework and the Survey aim to provide governments with actionable evidence to build and maintain people’s trust as the basis for successful planning and policy reforms, allowing democracies to be fitter, stronger and more resilient in the future.
    Keywords: COVID-19, democracy, intergenerational challenges, measurement, public trust
    JEL: D02 H12 H11
    Date: 2021–12–22
  14. By: Keith Head; Thierry Mayer
    Abstract: Constant elasticity of substitution (CES) demand for monopolistically competitive firm-varieties is a standard tool for models in international trade and macroeconomics. Inter-variety substitution in this model follows a simple share proportionality rule. In contrast, the standard toolkit in industrial organization (IO) estimates a demand system in which cross-elasticities depend on similarity in observable attributes. The gain in realism from the IO approach comes at the expense of requiring richer data and greater computational challenges. This paper uses the dataset of Berry et al. 1995, who established the modern IO method, to simulate counterfactual trade policy experiments. We use the CES model as an approximation of the more complex underlying demand system and market structure. Although the CES model omits key elements of the data generating process, the errors are offsetting, leading to reasonably accurate counterfactual predictions. For aggregate outcomes, it turns out that incorporating non-unitary pass-through matters more than fixing over-simplified substitution patterns. We do so by extending the commonly used methods of Exact Hat Algebra and tariff elasticity estimation to take into account oligopoly.
    Keywords: Constant Elasticity of Substitution;Industrial Organization;Oligopoly;Trade;Tariffs;Counterfactual analysis
    JEL: F1
    Date: 2021–12
  15. By: Robert Clark (Queen's University); Christopher Anthony Fabiilli (Competition Bureau Canada); Laura Lasio (McGill University)
    Abstract: We study cartels that operated in the US generic drug industry, leveraging quarterly Medicaid data from 2011-2018 and a difference-in-differences approach comparing the evolution of prices of allegedly collusive drugs with a group of competitive control drugs. Our analysis highlights (i) the difficulty of establishing a suitable control group when collusion is pervasive, (ii) the importance of accounting for market structure changes when defining the control period, and (ii) the existence of across- and within-drug heterogeneity. We focus on six drug markets that that were part of the expanded initial complaint and where there was no entry in the same class during the collusive period, permitting a clean measure of the causal impact of collusion on prices. Our most conservative estimates suggest that collusion led to price increases of between 0% and 166% for each of the six drugs, and damages of between $0 and $3 million for the Medicaid market.
    Keywords: antitrust, generic drugs, price fixing
    JEL: L41 L12 L13 D22 D43 K21 I18 L65
    Date: 2021–11

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