Journal of Regulatory Economics最新文献

This paper presents a model of an executive administration that decides whether to mandate benefit-cost analysis (BCA) of newly proposed regulations. A regulator has private information about the social benefit of a new rule but may differ from the executive’s preferences for regulation. BCA, which provides a noisy signal of the rule’s social benefit, is most valuable when the executive is regulation neutral. Extremely regulation-averse administrations may be harmed by BCA unless they can bias it. Our results are consistent with use of BCA by U.S. presidential administrations since Reagan.

Military families experience frequent moves, which poses significant challenges for career options for military spouses. One of the most common professions for military spouses is a registered nurse, which has state-level licensing requirements that add additional hurdles to continuing employment after a move. A series of reforms in the 2010s for military spouses in licensed professions allows nurses to obtain a license in a state where their service member spouse is stationed, as long as their license from their previous state is current and in good standing. This policy is crucial for military families and can provide job stability for registered nurses. We find suggestive evidence that the full recognition of military spouse licenses increases the probability of employment mobility by around 12%, while more restrictive reforms have the opposite effect. Our finding highlights the importance of policies supporting military personnel’s families and has implications for healthcare workforce planning and recruitment efforts.

Interconnectors play a crucial role in electric power systems. They contribute to balancing demand and supply in real-time, guaranteeing efficient dispatch in wide geographic regions, and increasing competition by creating large markets. However, interconnector capacity is a scarce resource because vertically integrated utilities were required to have generating capacity enough to supply most customers within their operating region under a regulated monopoly. Hence, identifying the efficient allocation method is essential, particularly after recent electricity market restructuring. This study evaluates the competitive effect of the implicit auction on the interconnector transmission capacity. The implicit auction allocates all the interconnector capacity simultaneously with electric energy in the day-ahead market. This method prevents market participants from strategically withholding the physical interconnector capacity ex ante to exercise market power, as allowed under the first come, first served rule. This study empirically shows how the capacity was withheld from the day-ahead market under the first come, first served rule using detailed reservation data. Next, I show that the implicit auction increases interconnector capacity available at the day-ahead market and trade volume. I use machine-learning methods, such as random forest and deep neural networks, to predict the counterfactual market outcomes without implicit auction. I find that the gain from trade under the implicit auction is more than US$55 million per year in Japan, which is more than 100 times the implementation cost of the implicit auction.

We study the conditions under which production processes exhibit a decreasing average cost function in the absence of perfectly competitive input markets and discuss some implications for regulatory policy.

Around the world, strict privacy regulations are gradually being implemented, with the intended purpose of facilitating consumers to protect their privacy. This paper analyzes the unintended consequences of privacy regulations in the context of asymmetric data advantage. To this end, this paper constructs a model of behavior-based price discrimination, where one firm (such as the incumbent) possesses more data than the other (such as the entrant). The results demonstrate that stricter privacy regulation always benefits the data-advantaged firm. However, it has negative implications for both the data-disadvantaged firm and consumers in most cases. Furthermore, strict regulation leads to weakened competition and intensified mismatching. Therefore, this paper suggests a lenient regulatory policy.

In this article, we compare a tax and a standard as environmental tools depending on firms’ R &D strategy and the government’s ability to credibly commit to its policy. We consider a duopoly model where production is polluting and in an effort to mitigate emissions, firms invest in green R &D (in the presence of technological spillovers) either cooperatively or non-cooperatively. We explore two policy games in which the regulator establishes an emission tax or an emission standard either before or after firms engage in R &D. We endogenize both the firms’ R &D strategy and the regulator’s choice of policy instrument. We find that an emission standard is adopted only when firms choose not to cooperate. Conversely, a tax is desirable when firms collaborate in green R &D. Moreover, we expand our framework by offering the opportunity for the regulator to authorize or ban cooperation in green R &D before the firms make their strategic decisions.

This paper examines the Food and Drug Administration’s regulation of drug safety. In one of the most sophisticated cost-benefit analyses to date, (Cost-benefit analysis of the FDA: The case of the prescription drug user fee acts, The Journal of Public Economics, 92, 1306–1325.) argue that between 1998 and 2005 the FDA’s drug submission process under the Prescription Drug User Fee Act (PDUFA) increased social surplus by $14–31 billion. However, this conclusion is based upon inappropriate data that underestimate the welfare costs of drugs that were withdrawn from the market due to their harmful side effects. Once appropriate epidemiological data are used to calculate the welfare costs of a single drug, Vioxx, which was withdrawn from the market after it was found to cause heart attacks, PDUFA I-II are found to have caused a net reduction in social welfare of between $1-201 billion. This indicates that statistically infrequent regulatory mistakes may have large social welfare implications that can counteract the benefits of years of accurate regulatory decisions. Thanks to Sarah Bernhardt, Romit Bhattacharya, Stephen DeCanio, Marco Giani, Colin Jennings, John Meadowcroft, and Tariq Thachil for helpful comments and suggestions. Special thanks to the helpful comments offered by two anonymous referees.

Privatization and remunicipalization have been used as alternative options to reform the delivery of local public services; in both cases, mainly because of disappointment with the service performance, although ideological preferences might also play a role. The drivers and effects of water privatization have been widely studied, whereas little empirical evidence is available for remunicipalization, particularly regarding its effects. Using a sample of Spanish municipalities, this paper assesses the change in the price of urban water following remunicipalization as compared to privatization. The main finding is that remunicipalization leads to smaller increases in price; this outcome is, however, due to a few atypical municipalities with abnormally low prices before the policy reform. Once these influential observations are controlled for, whether the reform consists of remunicipalization or privatization makes no difference regarding price changes. It is also found that remunicipalization is much more likely in cities governed by extreme left-wing parties.

Performance based regulation (“PBR”) directly regulates public utilities’ prices or revenues with the goal to provide greater incentives for achieving efficiencies and other cost savings than cost-of-service (profit) regulation provides. PBR plans typically include a formula capping the allowed prices or revenues with the cap calculated to reflect what we would expect to observe in competitive markets in the long run: prices are set to equal input prices minus productivity “I–X”, where I represents inflation and X represents industry-wide productivity. The PBR formula may also include a consumer stretch factor (“stretch factor”)—sometimes referred to as a consumer productivity dividend. Some regulators view the stretch factor as a one-time component meant to share between the company and customers the immediate expected increase in productivity growth as the regulated firm transitions from cost of service to PBR regulation. Other regulators view it more as a permanent component of PBR meant to incentivize the regulated firm beyond the initial switch to PBR by benchmarking its costs to a comparable group of companies and rewarding (penalizing) it for superior (inferior) cost performance. This paper focuses on economic aspects of utilizing the stretch factor as a permanent feature of PBR, and importantly, on the theoretical underpinnings of utilizing cost benchmarking to determine the stretch factor in a PBR plan. We provide a review of the academic literature on econometric cost benchmarking and assess that literature with respect to the stretch factor. We provide an econometric cost benchmarking analysis, using data on U.S. electricity transmission.

Abstract

The topic of pricing non-convexities in power markets has been explored vividly in the literature and among practitioners for the past twenty years. The debate has been focused on indivisibilities in short-term auctions, the computational tractability of some pricing proposals, and the economic analysis of their behavior. In this paper, we analyse a source of non-convexities that is not discussed as broadly: the indivisibilities in investment decisions. The absence of equilibrium that we are primarily concerned about is the long-term equilibrium. We derive a capacity expansion model with indivisibilities and we highlight the issues arising from it. We discuss its relevance and address one particular argument for neglecting indivisibilities in investment, namely market size. We investigate to what extent a capacity market that clears discrete offers can mitigate the lumpiness problem. We particularly introduce the novel concept of convex hull pricing for capacity auctions. We illustrate the main findings with a numerical experiment conducted on the capacity expansion model used by ENTSO-E to assess the adequacy of the entire European system.