IDEAS home Printed from https://ideas.repec.org/a/oup/restud/v87y2020i5p2019-2048..html
   My bibliography  Save this article

Measuring the Welfare Gains from Optimal Incentive Regulation

Author

Listed:
  • Jose Miguel Abito

Abstract

I empirically measure the welfare gains from optimal incentive regulation in the context of electric utilities facing both emissions and rate of return regulation (RORR). I provide evidence that RORR induces lower fuel efficiency, leading to greater coal consumption and higher emissions abatement costs. Replacing RORR with the optimal mechanism of Laffont and Tirole (1986) yields annual welfare gains of $686 million or a 11% reduction in electricity prices. I construct a much simpler two-contract menu that can achieve more than 65% of these welfare gains.

Suggested Citation

  • Jose Miguel Abito, 2020. "Measuring the Welfare Gains from Optimal Incentive Regulation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(5), pages 2019-2048.
    • Handle: RePEc:oup:restud:v:87:y:2020:i:5:p:2019-2048.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/restud/rdz050
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Abito, Jose Miguel & Knittel, Christopher R. & Metaxoglou, Konstantinos & Trindade, André, 2022. "The role of output reallocation and investment in coordinating environmental markets," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    2. Lamy, Laurent & Patnam, Manasa & Visser, Michael, 2023. "Distinguishing incentive from selection effects in auction-determined contracts," Journal of Econometrics, Elsevier, vol. 235(2), pages 1172-1202.
    3. Garrett, Daniel F., 2021. "Payoff implications of incentive contracting," Theoretical Economics, Econometric Society, vol. 16(4), November.
    4. Ovaere, Marten, 2023. "Cost-efficiency and quality regulation of energy network utilities," Energy Economics, Elsevier, vol. 120(C).
    5. An, Yonghong & Hong, Shengjie & Zhang, Daiqiang, 2023. "A structural analysis of simple contracts," Journal of Econometrics, Elsevier, vol. 236(2).
    6. Laurent Lamy & Manasa Patnam & Michael Visser, 2023. "Distinguishing incentive from selection effects in auction-determined contracts," Post-Print hal-04382099, HAL.

    More about this item

    Keywords

    Incentive regulation; Electric utilities; Emissions regulation; Mechanism design; Dynamic panel estimation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:87:y:2020:i:5:p:2019-2048.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/restud .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.