Energy Efficiency and Price Regulation
This paper examines the incentives embedded across different regulatory regimes â€“ price cap, rate of return and mandated target regulation â€“ for investment in energy efficiency programs at the supplierâ€™ end of the network. In our model, s a monopolist chooses whether or not to undertake an investment in energy efficiency, which is not observable by the regulator. We explore how the monopolistâ€™ s choice of effort changes under different regulatory regimes. We show that, in equilibrium, the monopolist chooses to exert positive effort more often under price cap regulation than under no regulation or mandated target regulation and that she exerts no effort under rate of return regulation. In terms of expected welfare, however, the results are ambiguous and complex. In particular, we provide a full characterisation of the optimal effort, optimal prices (regulated or unregulated) and expected welfare for the different regimes and show the trade-offs between rent extraction and incentives.
|Date of creation:||04 Nov 2013|
|Contact details of provider:|| Postal: St. Lucia, Qld. 4072|
Phone: +61 7 3365 6570
Fax: +61 7 3365 7299
Web page: http://www.uq.edu.au/economics/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wirl, Franz, 1995. "Impact of Regulation on Demand Side Conservation Programs," Journal of Regulatory Economics, Springer, vol. 7(1), pages 43-62, January.
- Eto, Joseph & Stoft, Steven & Belden, Timothy, 1997. "The theory and practice of decoupling utility revenues from sales," Utilities Policy, Elsevier, vol. 6(1), pages 43-55, March.
- J. Daniel Khazzoom, 1980. "Economic Implications of Mandated Efficiency in Standards for Household Appliances," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 21-40.
- 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.
- Leon Chu & David Sappington, 2013. "Motivating energy suppliers to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 43(3), pages 229-247, June.
- Hunt Allcott & Michael Greenstone, 2012.
"Is There an Energy Efficiency Gap?,"
Journal of Economic Perspectives,
American Economic Association, vol. 26(1), pages 3-28, Winter.
- Hunt Allcott & Michael Greenstone, 2012. "Is There an Energy Efficiency Gap?," NBER Working Papers 17766, National Bureau of Economic Research, Inc.
- Timothy Brennan, 2010. "Decoupling in electric utilities," Journal of Regulatory Economics, Springer, vol. 38(1), pages 49-69, August. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:qld:uq2004:495. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (SOE IT)
If references are entirely missing, you can add them using this form.