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Designing optimal gain sharing plans to promote energy conservation

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  • Leon Chu
  • David Sappington

Abstract

We analyze the optimal design of gain sharing plans to promote energy conservation. We show how the optimal plan varies as industry conditions and the regulator’s information change. We demonstrate the importance of allowing the energy supplier a choice among plans, some of which offer the prospect of both pronounced financial gains for superior performance and substantial losses for inferior performance. Copyright Springer Science+Business Media, LLC 2012

Suggested Citation

  • Leon Chu & David Sappington, 2012. "Designing optimal gain sharing plans to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 42(2), pages 115-134, October.
    • Handle: RePEc:kap:regeco:v:42:y:2012:i:2:p:115-134
    DOI: 10.1007/s11149-012-9194-3
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    References listed on IDEAS

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    1. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, December.
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    9. Dixon, Robert K. & McGowan, Elizabeth & Onysko, Ganna & Scheer, Richard M., 2010. "US energy conservation and efficiency policies: Challenges and opportunities," Energy Policy, Elsevier, vol. 38(11), pages 6398-6408, November.
    10. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
    11. Brennan, Timothy J., 2011. "Energy Efficiency Policy: Surveying the Puzzles," RFF Working Paper Series dp-11-27, Resources for the Future.
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    Citations

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    Cited by:

    1. Flavio Menezes & Joisa Dutra & Xuemei Zheng, 2013. "Energy Efficiency and Price Regulation," Discussion Papers Series 495, School of Economics, University of Queensland, Australia.
    2. Laura Abrardi & Carlo Cambini, 2014. "Tariff Regulation with Energy Efficiency Goals," IEFE Working Papers 65, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    3. Abrardi, Laura & Cambini, Carlo, 2015. "Tariff regulation with energy efficiency goals," Energy Economics, Elsevier, vol. 49(C), pages 122-131.
    4. Datta, Souvik, 2019. "Decoupling and demand-side management: Evidence from the US electric industry," Energy Policy, Elsevier, vol. 132(C), pages 175-184.
    5. Chandrashekeran, Sangeetha & Zuckerman, Julia & Deason, Jeff, 2015. "Raising the stakes for energy efficiency: A qualitative case study of California's risk/reward incentive mechanism," Utilities Policy, Elsevier, vol. 36(C), pages 79-90.
    6. Wirl, Franz, 2015. "White certificates — Energy efficiency programs under private information of consumers," Energy Economics, Elsevier, vol. 49(C), pages 507-515.
    7. Di Foggia, Giacomo & Beccarello, Massimo, 2020. "The impact of a gain-sharing cost-reflective tariff on waste management cost under incentive regulation: The Italian case," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 265.
    8. Franz Wirl, 2019. "Incentivizing Energy Efficiency under Private Information: The Social Optimum," The Energy Journal, , vol. 40(6), pages 1-22, November.
    9. Bardhan, Ashok & Jaffee, Dwight & Kroll, Cynthia & Wallace, Nancy, 2014. "Energy efficiency retrofits for U.S. housing: Removing the bottlenecks," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 45-60.
    10. repec:osf:socarx:cvb7e_v1 is not listed on IDEAS
    11. Gerlach, Heiko & Zheng, Xuemei, 2018. "Preferences for green electricity, investment and regulatory incentives," Energy Economics, Elsevier, vol. 69(C), pages 430-441.
    12. Joisa Dutra & Flavio M. Menezes & Xuemei Zheng, 2016. "Price Regulation and the Incentives to Pursue Energy Efficiency by Minimizing Network Losses," The Energy Journal, , vol. 37(4), pages 45-62, October.
    13. Leon Chu & David Sappington, 2013. "Motivating energy suppliers to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 43(3), pages 229-247, June.

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    More about this item

    Keywords

    Energy conservation; Gain sharing; Asymmetric information; D82; L51; Q38;
    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
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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