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on Regulation |
| By: | Megan R. Bailey; David P. Brown; Erica Myers; Blake C. Shaffer; Frank A. Wolak |
| Abstract: | The growth of electric vehicles (EVs) raises new challenges for electricity systems. We implement a field experiment to assess the effect of time-of-use (TOU) pricing and managed charging on EV charging behavior. We find that while TOU pricing is effective at shifting EV charging into off-peak hours, it unintentionally induces new and larger “shadow peaks” of simultaneous charging. These shadow peaks lead to greater exceedance of local capacity constraints and advance the need for distribution network upgrades. In contrast, centrally managed charging solves the coordination problem, reducing transformer capacity requirements, and is well-tolerated by consumers in our setting. |
| JEL: | L94 Q41 R40 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32886 |
| By: | Brown, David P. (University of Alberta, Department of Economics); Cajueiro, Daniel O. (University of Brasilia); Eckert, Andrew (University of Alberta, Department of Economics); Silveira, Douglas (University of Alberta, Department of Economics) |
| Abstract: | Real-time information has the potential to improve market outcomes in wholesale electricity markets. However, transparency can also facilitate coordination between firms, raising questions over the appropriate extent of information disclosure. Despite this ongoing debate, there is a lack of understanding of the information employed by firms when bidding in wholesale electricity markets. We use data from Alberta’s wholesale market and leverage machine learning techniques to evaluate the real-time information firms use when forming their bidding decisions. We find that aggregate market-level variables emerge as important predictors, while detailed firm-specific information does not lead to a material improvement in predicting firms’ bidding decisions. These results suggest that firm-specific information, which has raised concerns because of its potential use in facilitating coordinated behavior, may not be required to promote efficient market outcomes. |
| Keywords: | Machine Learning; Electricity; Price Forecasting; Competition Policy |
| JEL: | D43 L13 L50 L94 Q40 |
| Date: | 2024–08–18 |
| URL: | https://d.repec.org/n?u=RePEc:ris:albaec:2024_002 |
| By: | Eichenberg, Jannis; Hobbie, Hannes; Schug, Tizian |
| Abstract: | Increasing renewable electricity generation and the electrification of industry, mobility, and heating through sector coupling pose significant challenges to grid operators in maintaining secure and reliable system operations. Demand-side sector coupling applications increase electricity demands and stress electricity grids, but they also offer transmission system operators increased flexibility for congestion management. Due to the complexity of directly controlling decentralized demand-side technologies, incentive mechanisms present a promising solution for harnessing demand-side flexibility. This study investigates various incentive schemes to promote grid-supportive demand-side behavior by developing a bi-level programming framework. The framework models the decision-making processes of key stakeholders, including a TSO, an aggregator, and a market clearing agent, considering model-endogenous wholesale market equilibrium formation and congestion management optimization. The economic efficiency of different design options for grid congestion management is evaluated using an extended IEEE test system applied to a case study of the German electricity transmission system. The findings highlight the critical importance of time-dynamic premium design concepts due to the variability of renewable generation. While incentive-based market interventions increase electricity market costs and thereby shifting consumer rents to producers, the reduced transmission system operation cost leads to overall gains in total system welfare. |
| Keywords: | OR in energy, Flexibility premium, Bi-level optimisation, Congestion management, Transmission grid |
| JEL: | Q41 C61 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:302046 |
| By: | Geßner, Daniel |
| Abstract: | A lot of countries have recently published updated hydrogen strategies, often including more ambitious targets for hydrogen production. In parallel, accompanying ramp-up mechanisms are increasingly coming into focus with the first ones already being released. However, these proposals usually translate mechanisms from renewable energy (RE) policy without considering the specific uncertainties, spillovers, and externalities of integrating hydrogen electrolysis into electricity grids. This article details how different aspects of a policy can address the specific issues, namely funding, risk-mitigation, and the complex relation with electricity markets. It shows that, compared to RE policy, subsidies need to emphasize the input side more strongly as price risks and intermittency from electricity markets are more prominent than from hydrogen markets. Also, it proposes a targeted mechanism to capture the positive externality of mitigating excess electricity in the grid while keeping investment security high. Economic policy should consider such approaches before massively scaling support and avoid the design shortcomings experienced with early RE policy. |
| Keywords: | hydrogen policy, renewable energy policy, support mechanisms, contracts for difference |
| JEL: | O25 O38 Q42 Q48 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:wuewep:301868 |
| By: | Zhe Yuan; Panle Jia Barwick |
| Abstract: | The Hub-and-Spoke network is a defining feature of the airline industry. This paper is among the first in the literature to introduce an empirical framework for analyzing network competition among airlines. Airlines make market entry decisions and choose flight frequencies in the first stage, followed by price competition to attract passengers in the second stage. A key feature of this model is the linkage between direct and indirect flights, which is described by a technological relationship (and estimated using data) that proxies the Hub-and-Spoke network. The paper estimates the marginal costs of serving passengers and operating flights using first-order conditions, bounds the entry costs using inequalities derived from the reveal-preference argument, and employs a state-of-the-art econometric method to conduct inference for entry cost parameters. Ignoring network externality underestimates the benefits of operating an additional flight by 13.2%, and airlines would schedule 21.53% fewer one-stop flights had they made flight operation decisions independently for each market. To evaluate the impact of a hypothetical merger, the paper proposes a novel equilibrium concept that makes it feasible to compute the industry equilibria. Counterfactual analyses indicate that a hypothetical merger between Alaska and Virgin America would increase consumer surplus as the merged airline would offer direct flights in 10% more markets while the overall post-merger price effect would likely be muted. |
| JEL: | C51 L13 L14 L93 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32893 |
| By: | John A. List; Ioannis C. Pragidis; Michael K. Price |
| Abstract: | Prosumers are becoming increasingly important in global energy consumption and production. We partner with an energy service provider in Sweden to explore the economics facing such agents by conducting a natural field experiment over a 32-month period. As a policy instrument, we explore how simple nudges affect choices on both the consumption and production sides. Importantly, with the added flexibility to influence both sides of the market, and with a rich data set that permits an analysis of intraday, intraweek, and seasonal variation, we can detail effects on overall conservation efforts, intertemporal substitution, load shifting, and net purchases from the grid. The overarching theme is that nudges have the potential to have an even greater impact on the energy market with prosumers compared to their portmanteau components. |
| JEL: | C93 D9 Q4 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32837 |
| By: | José Ignacio Cuesta; Carlos E. Noton; Benjamin Vatter |
| Abstract: | We measure the impacts of vertical integration between insurers and hospitals. In the Chilean market, where half of private hospital capacity is vertically integrated, integration increases inpatient care spending by 6 percent and decreases consumer surplus and total welfare. Integrated insurers offer generous coverage at integrated hospitals, limited access to rival hospitals, and lower premiums. Competition for enrollees forces non-integrated insurers to provide additional coverage to high-quality non-integrated hospitals, resulting in plan networks that limit hospital competition. Whereas vertical integration reduces double marginalization, skewed cost-sharing structures—and their effect on hospital competition—more than compensate, leading to an overall negative welfare impact. |
| JEL: | I11 L13 L40 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32833 |
| By: | Wassim Daher (Gulf University for Science and Technology, Kuwait); Jihad Elnaboulsi (Université de Franche-Comté, CRESE, UR3190, F-25000 Besançon, France); Mahelet G. Fikru (Missouri University of Science and Technology, USA); Luis Gautier (Universidad de Málaga, Spain) |
| Abstract: | We study the incentives to merge for energy producers in the presence of distributed renewable energy producers. Utilizing a Cournot model, we explore how uncertainty surrounding the cost of grid integration influences the profitability of mergers, where uncertainty comes in the form of an industry-wide shock (or common) and firm-specific errors (private shock). We find that the effect of these uncertainties on merger profitability depends on average energy grid integration costs, the size of the merger, and quality of private information. Overall, results suggest that mergers are more likely to be profitable when firms can effectively absorb private shocks due to the scale of the merger, unless average grid integration costs become too high. The incentives to merge are less clear-cut in the presence of an industry-wide shock, unless the quality of private information is high enough. |
| Keywords: | - |
| JEL: | Q4 G34 Q2 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:crb:wpaper:2024-14 |
| By: | Werden, Gregory (Mercury Publication) |
| Abstract: | Abstract not available. |
| Date: | 2023–05–10 |
| URL: | https://d.repec.org/n?u=RePEc:ajw:wpaper:12390 |
| By: | James B. Bushnell; Aaron Smith |
| Abstract: | In recent years the analysis of US climate policy on the electricity sector has predominantly deployed electricity planning or capacity expansion models that use deterministic or equilibrium optimization methods. While uncertainty in key input assumptions is considered, it is usually restricted to scenario analysis. In this study we combine time-series econometric forecasting methods with an equilibrium electricity system-expansion model. The goal is to produce statistically rigorous distributions of outcomes, rather than rely upon individually selected scenarios. We apply these techniques to the case of the US Inflation Reduction Act (IRA) in the context of the western US electricity grid. The most significant power sector financial incentives are tax credits applied to eligible zero-carbon and storage resources. Our results indicate that the impact of the IRA, in terms of additional investment in low-carbon resources, depends heavily on the realization of key exogenous variables. However, the net effect of the IRA is to sharply narrow the range of future carbon emissions, largely by eliminating states of the world where investment in natural gas resources would otherwise be optimal. |
| JEL: | Q4 Q47 Q58 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32830 |
| By: | Concepción Fernández Zamanillo (BANCO DE ESPAÑA); Carolina Toloba Gómez (BANCO DE ESPAÑA) |
| Abstract: | La rápida evolución tecnológica plantea importantes desafíos para las autoridades reguladoras y supervisoras a escala mundial. Aunque las innovaciones financieras digitales ofrecen oportunidades, también conllevan riesgos significativos. Para afrontar estos retos, la Ley 7/2020, de 13 de noviembre, para la transformación digital del sistema financiero, establece una serie de medidas para fomentar la innovación financiera, garantizando la protección de los usuarios de servicios financieros, la estabilidad financiera, la integridad de los mercados y la prevención del blanqueo de capitales y la financiación del terrorismo. La medida más destacada es la creación de un sandbox o espacio controlado de pruebas, que sirve como un instrumento para mejorar la labor de legisladores y supervisores, al tiempo que impulsa el ecosistema innovador. Este documento describe el funcionamiento, las fases y los requisitos de acceso del sandbox regulatorio español. A continuación, se analiza el impacto que ha tenido en los promotores cuyos proyectos han sido monitorizados por el Banco de España, su participación en el espacio controlado de pruebas, cuál ha sido su experiencia, la evolución de sus proyectos y se presentan sus sugerencias para mejorar el instrumento. Por último, se describen otros cauces específicos de comunicación directa para interactuar con las autoridades supervisoras. |
| Keywords: | facilitadores de la innovación, sandbox regulatorio, arenero, banco de pruebas, espacio controlado de pruebas, caja de arena, innovation hub, centro de innovación, innovación financiera, fintech |
| JEL: | E58 O31 O32 O33 O38 G20 G28 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2427e |
| By: | Langlois, Richard (Mercury Publication) |
| Abstract: | Abstract not available. |
| Date: | 2024–05–21 |
| URL: | https://d.repec.org/n?u=RePEc:ajw:wpaper:12772 |
| By: | Masuyama, Ryo |
| Abstract: | Targeted pricing is an aggressive strategy that steals demand from rivals. Previous studies have shown that a firm prefers targeted pricing to uniform pricing when another supply chain is vertically integrated and thus its downstream firm purchases an input at a constant price. This study relaxes the assumption that supply chains are vertically integrated. When supply chains are vertically separated, downstream firms face increasing input-supply function. Then, targeted pricing reduces the rival's demand and hence its input price, which intensifies competition. This negative effect is so severe in our Hotelling model that a firm prefers uniform pricing to targeted pricing when another supply chain is vertically separated. |
| Keywords: | targeted pricing, uniform pricing, vertical structure, supply chain management, Hotelling model. |
| JEL: | D43 L10 L13 |
| Date: | 2024–08–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121680 |
| By: | Nicolas Schutz |
| Abstract: | I study a model in which two upstream firms compete to supply a homogeneous input to two downstream firms selling differentiated products. Upstream firms offer exclusive, discriminatory, public, two-part tariff contracts to the downstream firms. I show that, under very general conditions, this game does not have a pure-strategy subgame-perfect equilibrium. The intuition is that variable parts in such an equilibrium would have to be pairwise-stable; however, with pairwise-stable variable parts, downstream competitive externalities are not internalized, implying that upstream firms can profitably deviate. I contrast this non-existence result with earlier papers that found equilibria in related models. |
| Keywords: | vertical relations, exclusive dealing, two-part tariffs, slotting fees. |
| JEL: | L13 L14 L42 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_591 |
| By: | Rüdiger Fahlenbrach; Minsu Ko; René M. Stulz |
| Abstract: | Bank payout policy is strongly affected by regulation and politics, especially for the largest banks. Banks, but not industrial firms, have consistently lower payouts in times of high regulation uncertainty and under democratic presidents. After the Global Financial Crisis, bank regulators’ influence on payout policies of the largest banks increases sharply and repurchases become more important than dividends for these banks. Repurchases respond more to regulatory climate changes than dividends. The stock-price reaction of the largest banks to the election of Donald Trump is larger than for small banks or industrial firms, and their repurchases increase sharply afterwards. |
| JEL: | G21 G28 G35 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32770 |
| By: | OECD |
| Abstract: | The use of Artificial Intelligence (AI) in finance has increased rapidly in recent years, with the potential to deliver important benefits to market participants and to improve customer welfare. At the same time, AI in finance could also amplify existing risks in financial markets and create new ones. This report analyses different regulatory approaches to the use of AI in finance in 48 OECD and non-OECD jurisdictions based on the Survey on Regulatory Approaches to AI in Finance. |
| Date: | 2024–09–05 |
| URL: | https://d.repec.org/n?u=RePEc:oec:comaaa:24-en |
| By: | Villarino, Resti Tito (Cebu Technological University); Villarino, Maureen Lorence |
| Abstract: | Background: Online lending applications (OLAs) are rapidly gaining traction in the Philippines, offering previously unbanked individuals access to credit. However, this burgeoning sector is now under scrutiny due to numerous allegations of predatory practices, harassment, and even public shaming, raising significant concerns. Objective: This integrated review critically examines the landscape of OLAs in the Philippines, focusing on user experiences, regulatory constraints, and considerations related to financial equity and consumer protection. Methods: The authors followed Whittemore and Knafl's (2005) integrative review methodology, analyzing app ratings and reviews for 40 OLAs listed in the Google Play Store from January 1, 2024, to July 31, 2024. Cross-referencing was performed using the Securities and Exchange Commission (SEC) registration data. The analysis was conducted using IBM SPSS version 26 and MAXQDA version 2020. Results: The review found that 80% (32 out of 40) of OLAs were moderately rated (3.5-4.4 out of 5.0), suggesting general user satisfaction. However, only 25% (10 out of 40) of these OLAs were registered with the SEC. Critical themes such as high interest rates, hidden charges, and aggressive collection practices were more prevalent among non-registered OLAs. The absence of highly negative ratings (below 2.4) suggests possible rating manipulations. Thematic analysis revealed positive themes like convenience, speed, and accessibility, contrasted by negative themes including predatory practices, lack of transparency, and poor customer service. Conclusion: The OLA landscape in the Philippines is complex, balancing the need for accessible credit with the imperative of stronger regulatory oversight and consumer protection. This review highlights the necessity of enhancing regulatory monitoring and consumer safeguards to ensure financial innovation benefits vulnerable borrowers without exposing them to undue risk. Keywords: consumer protection, digital financial literacy, financial inclusion, fintech regulation, online lending in the Philippines, predatory practices |
| Date: | 2024–08–08 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:nr456 |
| By: | Ruiting Wang; Xue Wang; Gang Xu; Tao Zha |
| Abstract: | We estimate the effects of privatization on zombie versus healthy state-owned enterprises (SOEs) in China, extending our analysis beyond TFP to a broad array of financial and economic indicators. Privatizing zombie SOEs enhances labor productivity and TFP, reduces bank and government subsidies, alleviates leverage and administrative expenses, improves liquidity, boosts profits, and accelerates sales growth. These benefits are more pronounced than for healthy SOEs and are robust across regions and industries. Our findings offer policy implications for emerging markets, suggesting that prioritizing the privatization of underperforming, zombie-like entities can lead to substantial economic improvements and greater efficiency. |
| JEL: | D22 L21 L33 P31 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32795 |
| By: | Nicola Borri; Yukun Liu; Aleh Tsyvinski; Xi Wu |
| Abstract: | In economic theory, a cap-and-trade system is a market-based system mechanism that internalizes the environmental impact of economic activity and reduces pollution with minimal costs. Given that carbon trading is a financial market, we evaluate its efficiency using finance and asset-pricing tools. Our analysis of the universe of transactions in the European Union Emission Trading System in 2005-2020 demonstrates that this prominent cap-and-trade system for carbon emissions is dramatically inefficient because of a number of unintended consequences that significantly undermine its purposes. First, about 40% of firms never trade in a given year. Second, many firms only trade in the surrendering months, when compliance is immediate. We also show that these are the months where the price of emission allowances is predictably high. This surrendering trading pattern alone leads to a total estimated loss of about Euro 5 billion for the regulated firms, or about 2% of the traded volume of the regulated firms in the sample period. Third, a number of operators engage in speculative trading and profit by exploiting the market with private information. We estimate that these operators in total make about Euro 8 billion, or about 3.5% of the traded volume of the regulated firms in the sample period. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.06497 |
| By: | Jens Gudmundsson (University of Copenhagen); Jens Leth Hougaard (University of Copenhagen); Erik Ansink (Vrije Universiteit Amsterdam) |
| Abstract: | We take a decentralized approach to regulating environmental pollution in set- tings where each agent’s pollution possibly affects all others. There is no central agency to enforce pollution abatement or coordinate monetary transfers. Moreover, agents possess private information, which precludes deducing efficient abatement in general. We propose to implement transfer schemes through smart contracts to allow beneficiaries to compensate for abatement. We characterize all schemes that induce efficient abatement in unique dominant-strategy equilibrium. Moreover, appealing to classical fairness tenets, we pin down the “beneficiaries-compensates principle†. Supporting this principle through smart contracts provides a promising step towards decentralized coordination on environmental issues. |
| Keywords: | Pollution, Decentralization, Smart contracts, Beneficiaries-compensates principle |
| JEL: | C72 D62 Q52 H23 |
| Date: | 2024–05–23 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20240035 |