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Nuclear Capacity Auctions

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Abstract

We propose nuclear capacity auctions as a means to improve the incentives for investing in nuclear power. A properly designed auction would (i) allocate the license to the most efficient bidder; (ii) sell the license if and only if new nuclear power was socially optimal. In particular, capacity auctions open the market for large-scale entry by outside firms. Requiring licensees to sell a share of capacity as virtual power plant contracts increases auction efficiency by softening incumbent producers’ incentive to bid for market power. Our motivating example is Sweden’s recent decision to allow new nuclear power to replace old reactors.

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  • Fridolfsson, Sven-Olof & Tangerås, Thomas, 2011. "Nuclear Capacity Auctions," Working Paper Series 892, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0892
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    1. Lucas W. Davis & Catherine Wolfram, 2012. "Deregulation, Consolidation, and Efficiency: Evidence from US Nuclear Power," American Economic Journal: Applied Economics, American Economic Association, vol. 4(4), pages 194-225, October.
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    5. Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996. "How (Not) to Sell Nuclear Weapons," American Economic Review, American Economic Association, vol. 86(4), pages 814-829, September.
    6. John Asker & Estelle Cantillon, 2008. "Properties of scoring auctions," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 69-85.
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    8. Catherine Hausman, 2014. "Corporate Incentives and Nuclear Safety," American Economic Journal: Economic Policy, American Economic Association, vol. 6(3), pages 178-206, August.
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    13. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, December.
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    Cited by:

    1. Edquist, Harald & Henrekson, Magnus, 2013. "Product Market Reforms and Incentives to Innovate in Sweden," Working Paper Series 986, Research Institute of Industrial Economics.

    More about this item

    Keywords

    Capacity auctions; investments; market power; nuclear power; virtual power plants;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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