nep-reg New Economics Papers
on Regulation
Issue of 2022‒11‒21
fourteen papers chosen by
Christopher Decker
Oxford University

  1. Beyond capacity: contractual form in electricity reliability obligations By Han Shu; Jacob Mays
  2. Moving from Linear to Conic Markets for Electricity By Anubhav Ratha; Pierre Pinson; Hélène Le Cadre; Ana Virag; Jalal Kazempour
  3. Innovation Begets Innovation and Concentration: the Case of Upstream Oil & Gas in the North Sea By Michele Fioretti; Alessandro Iaria; Aljoscha Janssen; Robert K Perrons; Clément Mazet-Sonilhac
  4. Ex-post evaluation of the American Airlines-US Airways merger: a structural approach By Christian Bontemps; Kevin Remmy; Jiangyu Wei
  5. Privatization, Entry and Corporate Social Responsibility with Consumer Cognition By Wen, Jun; Diao, Yu; Wang, Leonard F. S.; Sun, Ji
  6. Foreclosure and Tunneling with Partial Vertical Ownership By Matthias Hunold; Vasilisa Petrishcheva
  7. Price dispersion in the rideshare industry : a study of the Mexico City market By Sullivan, Tom
  8. Competitive Equilibria in Incomplete Markets with Risk Loving Preferences By Herings, Jean-Jacques; Zhan, Yang
  9. The Can Challenge: How important are user-generated data for search result quality? Experimental evidence By Tobias J. Klein; Madina Kurmangaliyeva; Jens Prufer; Patricia Prufer
  10. The Drivers of Firms' Compliance to Environmental Regulations : The Case of India By Franco Bedoya,Sebastian; Mani,Muthukumara S.
  11. Review of Urban Wastewater Management and Clean Water Act By Domingo, Sonny N.; Manejar, Arvie Joy A.
  12. Estimating the Magnitude of Water Supply and Sanitation Subsidies By Andres,Luis Alberto; Espineira,Gonzalo; Joseph,George; Sember,German Eduardo; Thibert,Michael David
  13. Can water productivity improvements save us from global water scarcity?. White paper By Yu, Winston; Uhlenbrook, Stefan; von Gnechten, Rachel; van der Bliek, Julie
  14. Basel III and SME bank finance in Germany By Marek, Philipp; Stein, Ingrid

  1. By: Han Shu; Jacob Mays
    Abstract: Liberalized electricity markets often include resource adequacy mechanisms that require consumers to contract with generation resources well in advance of real-time operations. While administratively defined mechanisms have most commonly taken the form of a capacity obligation, efficient markets would feature a broad array of arrangements adapted to the risk profiles and appetites of market participants. This article considers how the financial hedge embedded in alternative resource adequacy contract designs can induce different responses from risk-averse investors, with consequences for the resource mix and market structure. We construct a stochastic equilibrium model describing a competitive market with incomplete risk trading and compute investment equilibria under different contracting regimes. Two policy recommendations result. First, to avoid creating inefficiency by crowding out other forms of risk sharing, system operators should allow resources contracted through other means to opt out of mandatory capacity mechanisms, with their contribution to those requirements subtracted from administratively defined demand curves. Second, if they wish to promote a single contractual form, regulators should consider replacing existing option-like capacity mechanisms with a shaped forward contract for energy. Beyond these recommendations, we discuss the tension that liberalized systems face in seeking to promote both reliability and competitive outcomes.
    Date: 2022–10
  2. By: Anubhav Ratha (DTU Electrical Engineering [Lyngby] - DTU - Danmarks Tekniske Universitet = Technical University of Denmark); Pierre Pinson (Imperial College London); Hélène Le Cadre (Inria Lille - Nord Europe - Inria - Institut National de Recherche en Informatique et en Automatique); Ana Virag (VITO - Flemish Institute for Technological Research); Jalal Kazempour (DTU Electrical Engineering [Lyngby] - DTU - Danmarks Tekniske Universitet = Technical University of Denmark)
    Abstract: We propose a new forward electricity market framework that admits heterogeneous market participants with second-order cone strategy sets, who accurately express the nonlinearities in their costs and constraints through conic bids, and a network operator facing conic operational constraints. In contrast to the prevalent linear-programming-based electricity markets, we highlight how the inclusion of second-order cone constraints improves uncertainty-, asset-, and network-awareness of the market, which is key to the successful transition towards an electricity system based on weather-dependent renewable energy sources. We analyze our general market-clearing proposal using conic duality theory to derive efficient spatially-differentiated prices for the multiple commodities, comprised of energy and flexibility services. Under the assumption of perfect competition, we prove the equivalence of the centrally-solved market-clearing optimization problem to a competitive spatial price equilibrium involving a set of rational and self-interested participants and a price setter. Finally, under common assumptions, we prove that moving towards conic markets does not incur the loss of desirable economic properties of markets, namely market efficiency, cost recovery, and revenue adequacy. Our numerical studies focus on the specific use case of uncertainty-aware market design and demonstrate that the proposed conic market brings advantages over existing alternatives within the linear programming market framework.
    Keywords: OR in energy,spatial equilibrium,mechanism design,electricity markets,conic economics
    Date: 2022–10–06
  3. By: Michele Fioretti (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Alessandro Iaria (University of Bristol [Bristol]); Aljoscha Janssen (SIS - Singapore Management University); Robert K Perrons (QUT - Queensland University of Technology [Brisbane]); Clément Mazet-Sonilhac (Centre de recherche de la Banque de France - Banque de France, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We investigate the effect of technology adoption on competition by leveraging a unique dataset on production, costs, and asset characteristics for North Sea upstream oil & gas companies. Relying on heterogeneity in the geological suitability of fields and a landmark decision of the Norwegian Supreme Court that increased the returns of capital investment in Norway relative to the UK, we show that technology adoption increases market concentration. Firms with prior technology-specific know-how specialize more in fields suitable for the same technology but also invest more in high-risk-high-return fields (e.g., ultra-deep recovery), diversifying their technology portfolio and ultimately gaining larger shares of the North Sea market. Our analyses illustrate how technology adoption can lead to market concentration both directly through specialization and indirectly via experimentation.
    Keywords: Market structure,Competition,Specialization,Experimentation,Upstream oil and gas markets,North Sea,Innovation,Adoption
    Date: 2022–05–24
  4. By: Christian Bontemps (TSE-R - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Kevin Remmy (université de Mannheim); Jiangyu Wei (Compass Lexecon)
    Abstract: In this paper, we estimate a structural model of the domestic US airline market to analyse the effect of the recent merger between American Airlines and US Airways. Our results show that, between 2011 and 2016, a substantial fuel price drop, in conjunction with changes in consumer preferences towards direct flights, completely rationalises the observed decrease in prices. However, we estimate that, during the same period, more than half of the consumer welfare increase is due, on top of these environmental changes, to the ex-post optimisation of the networks of the newly merged airline and of its competitors.
    Keywords: Merger,Airlines,Network,Structural model,Nested logit,Airfare,Demand,Supply
    Date: 2022–04
  5. By: Wen, Jun; Diao, Yu; Wang, Leonard F. S.; Sun, Ji
    Abstract: In this paper, we formulate a mixed triopoly with product differentiation and consumer cognition in which a welfare-maximizing public firm and CSR-concerned private firms conduct quantities competition. The government decides the optimal degree of privatization of public firm. We find that the privatization degree of public firm is closely related to product differentiation and consumer cognition. When private firm enters, whether CSR efforts are made or not, the degree of privatization will be higher. Furthermore, if the public firm is the leader of the industry, government’s optimal choice of privatization is not to privatize. The total output level, consumer surplus and social welfare are lower than those of Cournot competitors.
    Keywords: Privatization; Corporate Social Responsibility; Mixed Triopoly; Consumer Cognition
    JEL: D43 L13 L21 L31 M14
    Date: 2022–10–26
  6. By: Matthias Hunold (University of Siegen); Vasilisa Petrishcheva (University of Potsdam)
    Abstract: We demonstrate how the incentives of firms that partially own their suppliers or customers to foreclose rivals depend on how the partial owner can extract profits from the target (tunneling). Compared to a fully vertically integrated firm, a partial owner may obtain only a share of the target’s profit but influence the target’s strategy significantly. We show that the incentives for customer and input foreclosure can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations affect the scope for profit extraction.
    Keywords: Backward ownership, Entry deterrence, Foreclosure, Minority shareholdings, Partial ownership, Uniform pricing, Vertical integration
    JEL: G34 L22 L40
    Date: 2022–11
  7. By: Sullivan, Tom (Monash University)
    Abstract: Nascent and highly dynamic industries such as the rideshare industry have disrupted traditional industries and business models. The use of technology has allowed firms like Uber and Didi to compete over both consumers and workers on an increasingly sophisticated level. This paper explores the use of algorithmic pricing strategies employed by the rideshare industry and the impact of such strategies on the overall level of competition in the market. It uses the Mexico City, Mexico, rideshare industry as a case study. The paper shows that specific firms target specific consumers based on whether those consumers are informed or uninformed about other options in the market, and do so at specific times based on the level of demand in the market. The findings of the paper are relevant for both economic understanding of such markets as well as policy responses.
    Keywords: Rideshare ; Uber ; algorithm ; pricing ; competition ; consumer JEL Classification: D4 ; L1
    Date: 2022
  8. By: Herings, Jean-Jacques (Tilburg University, Center For Economic Research); Zhan, Yang
    Keywords: Risk lovers; competitive equilibrium; market incompleteness; equilibrium existence
    Date: 2022
  9. By: Tobias J. Klein (Tilburg School of Economics and Management, Tilburg University & C.E.P.R.); Madina Kurmangaliyeva (ECARES, Universite Libre de Bruxelles); Jens Prufer (School of Economics and Centre for Competition Policy, University of East Anglia); Patricia Prufer (CentERdata, Tilburg University)
    Abstract: Do some search engines produce better search results because their algorithm is better, or because they have access to more data from past searches? In the latter case, mandatory data sharing, a policy that is currently discussed, could trigger innovation and would benefit all users of search engines. We document that the algorithm of a small search engine can produce non-personalized results that are of similar quality than Googles, if it has enough data, and that overall differences in the quality of search results are explained by searches for less popular search terms. This is confirmed by results from an experiment, in which we keep the algorithm of the search engine fixed and vary the amount of data it uses as an input.
    Date: 2022–09
  10. By: Franco Bedoya,Sebastian; Mani,Muthukumara S.
    Abstract: Regulatory compliance is key in the fight against climate change and other environmental challenges. But regulatory agencies, especially in developing countries, are often hampered by their capacity to monitor and enforce standards and regulations against recalcitrant firms. There is now a big push toward self-reporting whereby the firms monitor and report on their compliance levels vis-a-vis the standards. This is seen as a way around the costs that agencies must incur if they were to scale up their inspections. In this paper, extensive firm-level data from India are used to compare the compliance level of firms when they are inspected by agencies versus the times when they self-report. Other factors that may determine regulatory compliance, such as age, size, sector, location, and so forth, are also examined. The results indicate that compliance rates are higher in the case of self-reporting than in the case of inspection, suggesting that there is a need to reform the self-report mechanism. Newer and privately owned firms are more compliant. There are also differences between complying with air and water pollution. Finally, the paper examines whether environmental monitoring through inspections leads to improvement in compliance levels, to assess the effectiveness of the regulations and inspections. The findings suggest that the increase in compliance is limited to a few industries.
    Keywords: Hydrology,Energy and Mining,Air Quality&Clean Air,Pollution Management&Control,Brown Issues and Health
    Date: 2020–11–04
  11. By: Domingo, Sonny N.; Manejar, Arvie Joy A.
    Abstract: Wastewater and pollution management issues are usual negative externalities in the pursuit of economic development. This is true in the Philippines where industrial and domestic refuse often end up in tributaries and major waterways, sometimes even contaminating groundwater due to improper septage and sewerage design. The passage of the Clean Water Act (Republic Act No. 9275), and the subsequent launching of the National Sewerage and Septage Management Plan (NSSMP) were expected to facilitate the accomplishment of water sectoral targets. While acknowledged to be an integral component of the country’s development agenda, wastewater management’s requirements for large-scale investments and resources were often overlooked and underfunded, adding to target shortfalls. The sector also remained plagued with institutional fragmentation and disjointed efforts in the absence of an overarching framework and master plan. Given these challenges, the study echoes the call to rationalize the sector’s institutional governance and development direction. Improved septage coverage and standardization guidelines are viable short-run interventions, while the national government orchestrates and the local government units muster interest in investing in sewerage facilities. Comments to this paper are welcome within 60 days from the date of posting. Email
    Keywords: sanitation;Clean Water Act; wastewater management; sewage; septage; effluent
    Date: 2021
  12. By: Andres,Luis Alberto; Espineira,Gonzalo; Joseph,George; Sember,German Eduardo; Thibert,Michael David
    Abstract: The water supply and sanitation sector remains heavily subsidized around the world. Yet, theaccounting of water supply and sanitation subsidies globally has proved challenging due to utility-level data limitationsand their often implicit nature. This paper develops a methodology to estimate water supply and sanitationsubsidies that is adaptable to data scarce environments, while accounting for differences among service providerssuch as population served (to account for economies of scale), coverage of water and sanitation servicesindividually, and their level of operational efficiency in terms of water losses and staffing. This methodology isbased on Chile’s empresa modelo (model firm) approach to cost-reflective tariff estimation and uses utility-leveldata from the World Bank's International Benchmarking Network for Water and Sanitation Utilities database. Theresults suggest that the cost of subsidies associated with the operations, maintenance, and major repair andreplacement of existing water supply and sanitation infrastructure in much of the world (excluding, notably,China and India) is an estimated $289 billion to $353 billion per year, or 0.46 to 0.56 percent of thecountries' combined gross domestic product. This figure rises, shockingly, to 1.59 to 1.95 percent if only low- andmiddle-income economies are considered, an amount largely due to the capital subsidies captured in the estimation.Subsidies of operating costs account for approximately 22 percent of the total subsidy amount in the full sample andfor low-income economies separately. Annual subsidy amounts by region range from 0.05 to 2.40 percent of gross domesticproduct, and low-income economies are generally at the high end of this range. The estimations do not include capitalexpenditure for infrastructure expansion -- which tends to be fully subsidized -- or environmental costs. Therefore,the actual global magnitude of networked water supply and sanitation subsidies is much greater than the estimation.
    Keywords: Hydrology,Engineering,Sanitation and Sewerage,Town Water Supply and Sanitation,Water and Human Health,Sanitary Environmental Engineering,Health and Sanitation,Environmental Engineering,Water Supply and Sanitation Economics,Small Private Water Supply Providers
    Date: 2020–10–21
  13. By: Yu, Winston (International Water Management Institute); Uhlenbrook, Stefan (International Water Management Institute); von Gnechten, Rachel (International Water Management Institute); van der Bliek, Julie (International Water Management Institute)
    Keywords: Water productivity; Water scarcity; Agricultural water use; Water allocation; Water accounting; Sustainable Development Goals; Water resources; Water management; Groundwater; Climate change; Food security; Water policies; Policy making; Stakeholders; Farmers
    Date: 2021
  14. By: Marek, Philipp; Stein, Ingrid
    Abstract: This paper examines how Basel III capital reforms affected bank lending in Ger- many. We focus on the increase of minimum risk-based capital requirements and the introduction of the leverage ratio. The announcement of stricter risk-based capital regulation significantly affected low capitalized banks. The impact depends on a bank's credit risk model, i.e. whether a bank applies the standardized approach (SA) or an internal ratings-based approach (IRBA) to determine risk weights. Low capitalized SA banks significantly cut lending whereas IRBA banks did not ad- just lending volumes. By contrast, low capitalized IRBA banks significantly in- creased collateralization while low capitalized SA banks adjusted collateralization only marginally. Moreover, the impact on SMEs and large companies also differs. In terms of lending, SMEs were affected more strongly, whilst in terms of collateralization the impact on large companies was bigger. The announcement of the leverage ratio had, however, a rather limited impact. We find some evidence that low capitalized banks reduced lending. Furthermore, low capitalized banks somewhat tightened collateral requirements, especially for large companies.
    Keywords: Basel III,bank lending,nancial regulation,small and medium-sizedenterprises (SMEs)
    JEL: D22 E58 G21
    Date: 2022

This nep-reg issue is ©2022 by Christopher Decker. 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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