nep-reg New Economics Papers
on Regulation
Issue of 2023‒09‒11
twelve papers chosen by
Christopher Decker, Oxford University

  1. Equity effects of energy affordability interventions By Farrell, Niall
  2. Pricing energy consumption and residential energy-efficiency investment: An optimal tax approach By Crampes, Claude; Ladoux, Norbert; Lozachmeur, Jean-Marie
  3. Cursed Consumers and the Effectiveness of Consumer Protection Policies By Alessandro Ispano; Peter Schwardmann
  4. Flagship Entry in Online Marketplaces By Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Lu Fang
  5. Stacked Revenues for Energy Storage Participating in Energy and Reserve Markets with an Optimal Frequency Regulation Modeling By Ahmed Mohamed; Rémy Rigo-Mariani; Vincent Debusschere; Lionel Pin
  6. Bidding Behaviour in Interdependent Markets for Electricity and Green Certificates By Ganhammar, Kajsa
  7. Performance of Renewable Energy Policies - Evidence from Germany's Transition to Auctions By Geßner, Daniel
  8. Provision of frequency containment reserve from residential battery storage systems: A German case study By Fett, Daniel; Fraunholz, Christoph; Lange, Malin
  9. Buyer Power and Exclusion: A Progress Report By Claire Chambolle; Clémence Christin; Hugo Molina
  10. Interlocking Directorates in Europe: An Enforcement Gap? By Florence Thepot
  11. Product Liability: Detecting Potential Risks in New Products By Andrea Castellano; Gustavo Ferro; Maximiliano Miranda Zanetti
  12. Regulatory Reforms and Price Heterogeneity in an OTC Derivative Market By Daisuke Miyakawa; Takemasa Oda; Taihei Sone

  1. By: Farrell, Niall
    Date: 2023
  2. By: Crampes, Claude; Ladoux, Norbert; Lozachmeur, Jean-Marie
    Abstract: We analyze a Pareto optimal income tax problem à la Mirrlees (1971) in which households consume three types of goods: energy goods, energy efficient investments and non-energy goods. The two main ingredients of our normative analysis are: i) an indirect relationship between energy and the satisfaction of energy needs, as energy-efficient investments transform energy into services such as light, heating, and air conditioning; and, ii) imperfect information of the policy designer as regards the level of energy efficiency of households’ housing and their labor market productivity. Each household differs with respect to these two latter characteristics, and the government designs a non-linear income tax combined with energy and energy efficient investment non linear pricing that maximizes a weighted sum of households’ utilities. We show that a benevolent social planner should distort energy prices in a way that depends on the difference between the saturation of energy needs and the complementarity between energy and the level of energy efficiency in the provision of energy services. A sufficient condition for energy consumption to be subsidized is that the rebound effect is small. Second, when individuals can invest in energy efficiency on top of energy consumption, these investments should always be subsidized and the marginal subsidy should always be higher than the one on energy consumption.
    JEL: H21 I38 Q48
    Date: 2023–08–24
  3. By: Alessandro Ispano (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université); Peter Schwardmann (LMU - Ludwig-Maximilians-Universität München)
    Abstract: We model firms' quality disclosure and pricing in the presence of cursed consumers, who fail to be sufficiently skeptical about undisclosed quality. We show that cursed consumers are exploited in duopoly if firms are vertically differentiated, if there are few cursed consumers, and if average product quality is high. Three common consumer protection policies that work under monopoly, that is, mandatory disclosure, third party disclosure and consumer education, may all increase exploitation and decrease welfare. Even where these policies improve welfare, they often lead to a reduction in consumer surplus. Our conclusions hold in extensions with endogenous quality and horizontal differentiation.
    Keywords: naive, cursed, disclosure, consumer protection, labeling
    Date: 2023
  4. By: Ginger Zhe Jin; Zhentong Lu; Xiaolu Zhou; Lu Fang
    Abstract: In this paper, we empirically study how flagship entry in an online marketplace affects consumers, the platform, and various sellers on the platform. We find flagship entry may benefit consumers by expanding the choice set, by intensifying price competition within the entry brand, and by improving consumer perception for parts of the platform. In the meantime, flagship entry cannibalizes the sales of same-brand sellers, while other brands may gain as the buyer base expands on the platform. Counterfactual simulation suggests that flagship entry improves the gross merchandise value of the platform and overall consumer welfare in most cases.
    Keywords: Market structure and pricing; Economic models
    JEL: D4 L1 L8
    Date: 2023–08
  5. By: Ahmed Mohamed (G2Elab-SYREL - G2Elab-SYstèmes et Réseaux ELectriques - G2ELab - Laboratoire de Génie Electrique de Grenoble - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes, G2ELab - Laboratoire de Génie Electrique de Grenoble - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes); Rémy Rigo-Mariani (G2Elab-SYREL - G2Elab-SYstèmes et Réseaux ELectriques - G2ELab - Laboratoire de Génie Electrique de Grenoble - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes, G2ELab - Laboratoire de Génie Electrique de Grenoble - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes); Vincent Debusschere (G2ELab - Laboratoire de Génie Electrique de Grenoble - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes, G2Elab-SYREL - G2Elab-SYstèmes et Réseaux ELectriques - G2ELab - Laboratoire de Génie Electrique de Grenoble - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes); Lionel Pin (Atos Worldgrid [Grenoble])
    Abstract: This paper investigates the opportunity for a Battery Energy Storage System (BESS) to participate in multiple energy markets. The study proposes an offline assessment to calculate the maximum annual revenues to reach the optimum stack of services through deterministic simulations. The markets include wholesale energy markets (day-ahead and intraday), ancillary services (frequency regulation and reserve), and the capacity mechanism. The study case performed on the French markets shows that frequency services overperform the other markets, where the long-term capacity market has the least potential. Moreover, providing multiple services maximizes the battery's revenues, for example, participating in joint energy and reserve markets showed a 76% increase in annual profits. Furthermore, a novel operation approach was proposed to enhance the performance of these joint markets, by indirectly utilizing energy products as frequency reserves. The results demonstrate that the proposed formulation allows a revenue increase of ∼23% compared to the conventional framework for the provision of frequency regulation with BESSs. Additionally, the joint markets have been shown to be economically viable with 6.2 years payback period after considering battery degradation and depreciation cost.
    Keywords: energy storage, energy markets, reserve markets, optimization, stacked revenue
    Date: 2023
  6. By: Ganhammar, Kajsa (Department of Economics, Lund University)
    Abstract: Market-based climate policies have received increased attention, making it important to understand how such politically created markets affect competition in the electricity market. This paper focuses on the green certificate policy which financially supports producers of renewably sourced electricity by means of tradable certificates, and develops a simple duopoly model that incorporates both the electricity and the green certificate markets in an auction-based setting. The results suggest that, in case the subsidised technology has a higher expected marginal cost than the conventional technology, the policy can improve competition and efficiency in the electricity market. Conversely, if producers are ex-ante symmetric in their marginal costs, the advantage the policy creates enables the subsidised producer to bid higher at given cost as the probability of winning the electricity auction increases. This is harmful for competition and results in high consumer prices of electricity.
    Keywords: asymmetric procurement auctions; electricity markets; green certificates; renewable energy
    JEL: D43 D44 Q48
    Date: 2023–08–22
  7. By: Geßner, Daniel
    Abstract: Government support for green technologies and renewable energy in particular has become an integral cornerstone of economic policy for most industrialized economies. Due to competitive price determination and supposedly higher efficiency, auctions have in recent years widely succeeded feed-in-tariffs as the primary support instrument (del Rio & Linares, 2014; REN21, 2021). However, literature still struggles to produce causal evidence to validate mostly descriptive findings for efficiency gains. Yet, this evidence is needed as a foundation to provide robust recommendations to policy makers (Grashof et al., 2020). By utilizing a difference-in-differences approach, this paper provides such evidence for a German photovoltaic (PV) auctioning program which came into effect in 2015. Results for this natural experiment confirm that cost-effectiveness improved significantly while previous literature shows that capacity expansion remained high. Results additionally show that falling prices for PV panels were the primary driver of cost reductions and wages also exert high influence on support price. Input cost development therefore indeed strongly influences support level which was the aim with introducing competitive auctions. Interest rate development cannot be linked to support level development, most probably due to the low interest environment in considered period.
    Keywords: auctions, feed-in-tariffs, photovoltaic (PV), renewable energy policy, policy valuation, difference-in-differences
    JEL: Q48 Q55 Q58
    Date: 2023
  8. By: Fett, Daniel; Fraunholz, Christoph; Lange, Malin
    Abstract: In order to increase self-consumption (SC) more than half of the residential photovoltaic (PV) systems in Germany are installed with battery storage systems (BSS). The utilization of these BSSs however varies throughout the year and therefore they could be used for other services to further increase their profitability. Recent changes in regulation for frequency containment reserve (FCR) facilitate multi-use concepts and first aggregators are already prequalified for the German market. Against this background, we analyze the potential for the joint provision of FCR and SC increase from residential BSSs with a linear optimization model applied to 162 German households. Different scenarios including fixed shares of the BSS reserved for FCR, priorization of SC or a joint optimization of SC and FCR are examined. We find that fixed shares of FCR only lead to minimal additional financial benefits. Both, the joint optimization of FCR and SC and prioritizing SC lead to higher additional gains, while the loss in SC is low in both scenarios. Moreover, even when prioritizing SC still high shares of the BSS can be used for FCR. Only a significant increase in FCR prices leads to SC being sacrificed for higher FCR shares.
    Keywords: Frequency containment reserve, Residential battery storage system, Self-consumption, Multi-use, Pooling
    Date: 2023
  9. By: Claire Chambolle (UMR PSAE - Paris-Saclay Applied Economics - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Clémence Christin (UNICAEN - Université de Caen Normandie - NU - Normandie Université); Hugo Molina (ALISS - Alimentation et sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: This article presents recent advances in the analysis of buyer-seller networks, with a particular focus on the role of buyer power on exclusion. We first examine simple vertical structures and highlight that either upstream or downstream firms may have incentives to engage in exclusionary practices to either counteract or leverage buyer power. We then review current work attempting to revisit this issue in "interlocking relationships". Based on an ongoing research project, we show that the same exclusion mechanism arises when retail substitution is soft.
    Keywords: Vertical relationships, Buyer power, Distribution network, Exclusion
    Date: 2023
  10. By: Florence Thepot (DRES - Droit, religion, entreprise et société - UNISTRA - Université de Strasbourg - L'europe en mutation : histoire, droit, économie et identités culturelles - UNISTRA - Université de Strasbourg - CNRS - Centre National de la Recherche Scientifique - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This chapter highlights the potential anti-competitive risks raised by interlocking directorates between competitors (companies having common board members). Although in the US, Section 8 of the Clayton Act specifically prohibits interlocks among competitors, there is no such prohibition in Europe. The main claim of this chapter is that there may be an enforcement gap around anti-competitive effects of interlocking directorates in Europe. A review of relevant provisions shows that interlocking directorates are likely to fall short of EU competition law. In addition, national corporate laws, as well as tools of corporate governance may be of limited use to remedy competitive concerns. This chapter concludes with a discussion of research avenues that would inform suggestions for reforms.
    Keywords: Interlocking directorates, corporate law, corporate governance, competition
    Date: 2023–05
  11. By: Andrea Castellano; Gustavo Ferro; Maximiliano Miranda Zanetti
    Abstract: The central hypothesis of this article is that liability regulation can foster firms’ incentives to study the (potential) dangers of their products. We discuss alternative views and develop a formal model to analyze a firm´s incentive structure under the application of hindsight liability. We find a new role for liability regulation: to foster voluntary investment in research aimed at detecting potential risks in new products. The model allows us to analyze the firm´s investment decisions in research under different scenarios, each of which has varying expected costs. We offer some alternatives for institutional design seeking incentive compatibility with the aim proposed.
    Keywords: risk, regulation, product liability, incentives, asymmetric information
    JEL: K12 K22
    Date: 2023–08
  12. By: Daisuke Miyakawa (Waseda University); Takemasa Oda (Bank of Japan); Taihei Sone (Bank of Japan)
    Abstract: After the great financial crisis in the late 2000s, the over-the-counter (OTC) derivative markets started to face a set of new regulatory reforms. In this study, we empirically examine how and whether these reforms have achieved the transparent OTC derivative market accompanied by homogeneous prices as one of its intended goals. To do so, we use data from the universe of JPY-denominated interest rate swap (IRS) contracts that were executed in the period from April 2013 to October 2021 and involved at least one Japan-based entity. First, as reported in Cenedese et al. (2020), we observe a higher fixed rate for bilateral clearing than for central clearing even after the introduction of a quantity-based measure: the central counterparty (CCP) mandate. Second, such price heterogeneity temporarily increased but eventually diminished after the introduction of new margin rules for bilateral clearing. These results indicate that the ultimate source of price heterogeneity had been the insufficient margin provision in the bilateral clearing that the reforms effectively resolved.
    Keywords: Interest rate swap; regulatory reforms; over-the-counter; central clearing; margin
    JEL: G12 G15 G18 G20 G28
    Date: 2023–08–18

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