Deregulation, Consolidation, and Efficiency: Evidence from U.S. Nuclear Power
Author:
Wolfram, Catherine and Davis, Lucas
Collector:
Wolfram, Catherine and Davis, Lucas
Description:
Beginning in the late 1990s electricity markets in many U.S. states were deregulated and almost half of the nation's 103 nuclear power reactors were sold to independent power producers. Deregulation has been accompanied by substantial market consolidation and today the three largest companies control one-third of U.S. nuclear capacity. We find that deregulation and consolidation are associated with a 10 percent increase in operating efficiency, achieved primarily by reducing the duration of reactor outages. At average wholesale prices this increased efficiency is worth $2.5 billion annually and implies an annual decrease of 35 million metric tons of carbon dioxide emissions.
Development Effects of Electrification: Evidence from the Geologic Placement of Hydropower Plants in Brazil
Author:
Mobarak, Ahmed Mushfiq, Lipscomb, Molly, and Barham, Tania
Collector:
Mobarak, Ahmed Mushfiq, Lipscomb, Molly, and Barham, Tania
Description:
We estimate the development effects of electrification across Brazil over the period 1960- 2000. Brazil relies almost exclusively on hydropower, which requires intercepting water at high velocity. We build an engineering model which takes as inputs only geography (river gradient, water flow and Amazon) and simulates a time series of hypothetical electricity grids for Brazil that show how the grid would have evolved had infrastructure investments been made based solely on geologic cost considerations, ignoring all demand-side concerns. Using the model as an instrument, we document large positive effects of electrification on development that are underestimated when one fails to account for the political allocation of infrastructure projects or its targeting to under-developed areas. Broad-based improvement in labor productivity across sectors and areas rather than general equilibrium re-sorting (in-migration to electrified counties) appears to be the likely mechanism by which these development gains are realized.
Equivalent Allocation Mechanisms? A Field Experiment in Malawi
Author:
Jack, B. Kelsey
Collector:
Jack, B. Kelsey
Description:
Targeting public spending on difficult-to-observe characteristics often relies on self selection, which may be sensitive to the mechanism used for allocation. This paper directly compares two incentive compatible allocation mechanisms for tree cultivation subsidies in Malawi: a sealed bid, uniform price procurement auction and a take it or leave it price offer. At the contract price, the price offer elicits a higher supply of contracts, but of average lower quality: after six months, significantly fewer trees are alive under the posted price treatment. In spite of its relative complexity, the auction reveals more private information and results in superior self selection.
Allcott, Hunt, Mullainathan, Sendhil, and Taubinsky, Dmitry
Collector:
Allcott, Hunt, Mullainathan, Sendhil, and Taubinsky, Dmitry
Description:
We use a theoretical model and empirically-calibrated simulations of the automobile market to show how the traditional logic of Pigouvian taxation changes when consumers are inattentive to energy costs. Under inattention, there is a "Triple Dividend" from externality taxes: aside from reducing the provision of public bads and generating government revenue, they also reduce allocative inefficiencies caused by underinvestment in energy efficient capital stock. While Pigouvian taxes are clearly the preferred policy mechanism when externalities are the only market failure, inattention provides an "Internality Rationale" for alternative policies such as subsidies that reduce the relative price of energy efficient durable goods. However, heterogeneity in the way that consumers optimize or misoptimize means that non-discriminatory taxes and subsidies are blunt instruments for addressing misoptimization: any given policy is too strong for some consumers and too weak for others. We therefore discuss "Behavioral Targeting": the use of mechanisms such as tagging, screening, and nudges that preferentially affect misoptimizers. We also formally define a class of mechanisms called "Nudge-Inducing Policies," which are taxes specifically designed to encourage firms to use advertising, information provision, retail sales interactions, and other nudges to debias misoptimizing consumers.
Market-Based Emissions Regulation and the Evolution of Market Structure
Author:
Reguant, Mar, Fowlie, Meredith, and Ryan, Stephen
Collector:
Reguant, Mar, Fowlie, Meredith, and Ryan, Stephen
Description:
We assess the long-run dynamic implications of market-based regulation for mitigating carbon dioxide emissions in the US Portland cement industry. We consider several policy designs, including mechanisms that partially offset the cost of compliance through rebating. Our results highlight two general countervailing market distortions that face regulators of trade-exposed, concentrated industries. First, echoing a point first made by Buchanan (1969), reductions in product market surplus due to market power counteract the social benefits of carbon abatement. Second, import-exposed cement producers face competition from unregulated foreign competitors, leading to emissions "leakage" which offsets domestic emissions reductions. We find that a combination of these forces leads to social welfare losses for low social costs of carbon. At higher social costs of carbon, policies with production subsidies are efficient and welfare dominate more standard policy designs.
On Welfare Frameworks and Catastrophic Climate Risks
Author:
Millner, Antony
Collector:
Millner, Antony
Description:
Recent theoretical work in the economics of climate change has suggested that climate policy is highly sensitive to 'fat-tailed' risks of catastrophic outcomes (Weitzman, 2009b). Such risks are suggested to be an inevitable consequence of scientific uncertainty about the effects of increased greenhouse gas concentrations on climate. Criticisms of this controversial result fall into three categories: The first suggests it may be irrelevant to cost benefit analysis of climate policy, the second challenges the fat-tails assumption, and the third questions the behaviour of the utility function assumed in the result. This paper analyses these critiques, and suggests that those in the first two categories have formal validity, but that they apply only to the restricted setup of the original result, which may be extended to address their concerns. They are thus ultimately unconvincing. Critiques in the third category are shown to be robust, however they open up new ethical and empirical challenges for climate economics that have thus far been neglected – how should we 'value' catastrophes as a society? I demonstrate that applying results from social choice to this problem can lead to counterintuitive results, in which society values catastrophes as infinitely bad, even though each individual's utility function is bounded. Finally, I suggest that the welfare functions traditionally used in climate economics are ill-equipped to deal with climate catastrophes in which population size changes. Drawing on recent work in population ethics I propose an alternative welfare framework with normatively desirable properties, which has the effect of dampening the contribution of catastrophes to welfare.
Public Goods Agreements with Other Regarding Preferences
Author:
Kolstad, Charles D.
Collector:
Kolstad, Charles D.
Description:
Why cooperation occurs when noncooperation appears to be individually rational has been an issue in economics for at least a half century. In the 1960's and 1970's the context was cooperation in the prisoner's dilemma game; in the 1980's concern shifted to voluntary provision of public goods; in the 1990's, the literature on coalition formation for public goods provision emerged, in the context of coalitions to provide transboundary pollution abatement. The problem is that theory suggests fairly low (even zero) levels of contributions to the public good and high levels of free riding. Experiments and empirical evidence suggests higher levels of cooperation. This is a major reason for the emergence in the 1990's and more recently of the literature on other-regarding preferences (also known as social preferences). Such preferences tend to involve higher levels of cooperation (though not always). This paper contributes to the literature on coalitions, public good provision and other-regarding preferences. For standard preferences, the marginal per capita return (MPCR) to investing in the public good must be greater than one for contributing to be individually rational. We find that Charness-Rabin preferences tend to reduce this threshold for individual contributions. We also find that Charness-Rabin preferences reduce the equilibrium size of a coalition of agents formed to provide the public good. In contrast to much of the literature, we treat the wealth of agents as heterogeneous. In such cases, we find that transfers among agents of the coalition may be necessary to sustain cooperation (regardless of the nature of preferences). An example drawn from experiments is provided as an illustration of the effectiveness of social preferences.
