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on Regulation |
| By: | Mark R. Jacobsen; Arthur A. van Benthem |
| Abstract: | We estimate the sensitivity of scrap decisions to changes in used car values – the "scrap elasticity" – and show how it influences used car fleets under policies aimed at reducing gasoline use. Large scrap elasticities will tend to produce emissions leakage under efficiency standards as the longevity of used vehicles is increased, a process known as the Gruenspecht effect. To explore the magnitude of this leakage we assemble a novel dataset of U.S. used vehicle registrations and prices, which we relate through time via differential effects in gasoline cost: A gasoline price increase or decrease of $1 alters the number of fuel-efficient vs. fuel-inefficient vehicles scrapped by 18%. These relationships allow us to provide what we believe are the first estimates of the scrap elasticity itself, which we find to be about -0.7. When applied in a model of fuel economy standards, the elasticities we estimate suggest that 13-23% of the expected fuel savings will leak away through the used vehicle market. This considerably reduces the cost-effectiveness of the standard, rivaling or exceeding the importance of the often-cited mileage "rebound" effect. |
| JEL: | H23 Q52 Q58 |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19055&r=reg |
| By: | A. Lemus; Diego Moreno |
| Abstract: | A monopolist facing an uncertain demand makes ex-ante capacity decisions involving irreversible investments, and then chooses its output up to capacity upon the realization of demand. In equilibrium, capacity is low and underused. Imposing a binding price cap leads to an increase of capacity as well as expected output and total surplus, and to a decrease of expected price. The optimal price cap trades off the incentives for capacity investment and capacity withholding, and is well above the marginal cost. Price cap regulation alone cannot eliminate inefficiencies. When the unit cost of capacity is high the comparative static properties of price caps relative to the price cap than maximizes capacity investment ?* are analogous to those obtained when the demand is known with certainty, and the optimal price cap is ?*. When the unit cost of capacity is low, however, the expected output and surplus decrease with the price cap above and around ?*, and therefore the optimal price cap is below ?*. |
| Keywords: | Monopoly, Market power, Price cap regulation, Capacity investment, Capacity withholding, Demand uncertainty |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:we1309&r=reg |
| By: | Friedrich Kunz; Alexander Zerrahn |
| Abstract: | The management of congestion within the German electricity transmission network has become more important during the last years. This emerging relevance is caused by the increase of renewable generation and the partial phaseout of nuclear power plants. Both developments yield a change in the transmission flow pattern and thus the need for congestion management. Currently, four German transmission system operators (TSOs) are in charge of managing congestion using curative methods, particularly re-dispatch of power plants. However, the existence of four TSOs within Germany induces the question whether coordination between them in managing national congestion would be beneficial. To address this issue, we apply a generalized Nash equilibrium model to analyze different degrees of coordination, covering the German electricity market with a detailed representation of the generation and network structure. Our results indicate that the costs of congestion management decrease in a rising degree of coordination as TSOs take into account congestion in other operators' zones. Total costs are highest in case each TSO is solely responsible for its own zone, and lowest if one integrated entity is in charge of mitigating congestion. We conclude that, in a setup with multiple TSOs, inducing coordination, for instance through a common market, has the potential of lowering the overall costs of congestion management. |
| Keywords: | Congestion Management, Coordination, Electricity Economics, Generalized Nash Equilibrium, Germany |
| JEL: | C61 L94 Q40 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1298&r=reg |
| By: | Nathan H. Miller (Economic Analysis Group, Antitrust Division, U.S. Department of Justice) |
| Abstract: | I extend the oligopoly model of Allaz and Vila (1993) to explore how forward contracting affects the adverse welfare consequences of horizontal mergers. I derive a welfare statistic that, within the context of the model, is free of structural parameters. The statistic allows for conclusions that generalize across different cost and demand conditions. I then show that exogenous forward contracting mitigates welfare loss but that endogenous forward contracting exacerbates welfare loss provided the relevant industry is sufficiently concentrated. |
| Date: | 2013–05 |
| URL: | http://d.repec.org/n?u=RePEc:doj:eagpap:201301&r=reg |
| By: | Anna Kowalska-Pyzalska; Katarzyna Maciejowska; Katarzyna Sznajd-Weron; Rafal Weron |
| Abstract: | Using an agent-based modeling approach we show how personal attributes, like conformity or indifference, impact the opinions of individual electricity consumers regarding switching to innovative dynamic tariff programs. We also examine the influence of advertising, discomfort of usage and the expectations of financial savings on opinion dynamics. Our main finding is that currently the adoption of dynamic electricity tariffs is virtually impossible due to the high level of indifference in today's societies. However, if in the future the indifference level is reduced, e.g., through educational programs that would make the customers more engaged in the topic, factors like tariff pricing schemes and intensity of advertising will became the focal point. |
| Keywords: | Dynamic pricing; Time-of-use tariff; Demand response; Diffusion of innovations; Agent-based model; Spinson |
| JEL: | C63 O33 Q48 Q55 |
| Date: | 2013–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:wuu:wpaper:hsc1305&r=reg |
| By: | Charles E. McLure, Jr. (Hoover Institution, Stanford University) |
| Abstract: | This paper examines subsidies for the consumption of fossil fuels provided by developing countries and oil-exporting countries. (In what follows all unqualified references to fuel subsidies are to subsidies for the consumption of fossil fuels, including electricity that is generated by combusting fossil fuel. Thus neither production subsidies nor subsidies for other types of energy, such as hydro, solar, wind, and nuclear, are considered.6 In this context, “consumption” does not mean only household consumption; it includes consumption by business and governments.) The next section describes the negative effects of fuel subsidies mentioned above in greater detail. Although emphasis in this paper, as in most of the literature and in policy discussions, is on eliminating fuel subsidies, it should be emphasized that reforming fuel subsidies does not necessarily mean eliminating them quickly. There may be cases in which temporary, limited, and well-targeted fuel subsidies are appropriate. No effort has been made to identify these cases, which would require case-by-case analysis of the situation in particular countries. Progress has been made in recent years in reducing or eliminating subsidies to the consumption of fossil fuels, but much remains to be done.7 Section III discusses briefly how fuel subsidies are defined, describes the price-gap methodology commonly used in cross-country comparisons of consumption subsidies, indicates some shortcomings in that methodology, and notes that the level of subsidies is quite sensitive to international fuel prices, moving in concert with them. Section IV presents estimates of fossil fuel consumption subsidies for the 37 countries on which the International Energy Agency has complete data. The section then briefly describes some of the implications of eliminating subsidies, focusing on potential budget impacts in countries that, as a fraction of GDP, run significant budget deficits and spend significant amounts on fuel subsidies. Fuel consumption subsidies are often defended as alleviating poverty, and some subsidies may further this objective. But, because fuel subsidies are often poorly targeted, the distributional impact of many subsidies is regressive, or at best proportionate to income. Regressivity is especially likely in most of the countries of Sub-Saharan Africa and some of those in Asia, where only a small minority of the population – fewer than 10 percent in many countries – uses modern fuels and may not even have access to them. It is often the middle class who benefit the most from fuel subsidies – and who defend them most adamantly.8 Section V discusses the distributional impact of eliminating subsidies, which varies from country to country, as well as by the type of fuel subsidized. Although fuel subsidies are costly and are not well-targeted to relieve poverty, eliminating subsidies may impose onerous burdens on the poor. It may thus be necessary, for humanitarian as well as political reasons, to accompany subsidy reform with measures to alleviate the burden on the poor. Section VI examines measures that can be used to protect the poor when fuel consumption subsidies are reformed. Lack of space and expertise precludes discussion of the important issues involved in implementing fuel subsidy reform, including means of increasing support for reform by addressing distributional concerns.9 The use of biomass (firewood, charcoal, straw, agricultural residue, or dung) or coal for cooking and heating has several serious disadvantages: inter alia, emissions of GHGs are greater than with fossil fuels other than coal, dangerous indoor air pollution leads to impaired health, especially for women and small children, use of biomass often requires devotion of many hours to gathering fuel, again commonly by women and children, and, where dung is used for fuel, it causes deterioration of soil fertility. In recent years substantial attention has been devoted to assuring access to clean energy for all.10 An alternative argument for subsidizing the use of fossil fuels, albeit one that probably does not explain the prevalence of subsidies, is thus to induce poor households to shift from biomass and coal (solid or “traditional fuels”) to modern (non-solid) fuels (kerosene, gas, and electricity). Section VII discusses the use of fuel subsidies to encourage consumers to switch from traditional fuels to modern fuels. A short concluding section draws some tentative conclusions, based on the analysis presented earlier. There is clearly a strong case for reforming subsidies to the consumption of fossil fuels, as reform would improve environmental, economic, and budgetary, performance in countries now providing fuel subsidies. Care must be taken, however, to avoid or offset adverse effects on the real income of the poor. |
| Date: | 2013–04–07 |
| URL: | http://d.repec.org/n?u=RePEc:ays:ispwps:paper1312&r=reg |