IDEAS home Printed from
   My bibliography  Save this paper

Regulatory Tailoring, Reliability, and Price Volatility with Stochastic Breakdowns


  • Gruenspecht, Howard


Although real-world energy supply systems are subject to stochastic failures, the impacts of proposed regulations affecting these systems have typically been evaluated using non-stochastic models. This paper develops an energy market model that explicitly allows for stochastic failures and demonstrates they play an important, or even dominant, role in determining the market impacts of environmental regulations that tailor product specifications to address local or regional conditions, such as fuel-formulation requirements specific to certain regional markets within the United States. While traditional non-stochastic analyses view the tailoring of regulatory requirements by location as an efficiency-enhancing alternative to a "one size fits all" regulatory approach, they fail to consider the adverse impact on reliability in all market segments resulting from the loss of product fungibility due to tailoring. We show that regulatory impact estimates developed without explicit consideration of reliability considerations may be highly inaccurate.

Suggested Citation

  • Gruenspecht, Howard, 2002. "Regulatory Tailoring, Reliability, and Price Volatility with Stochastic Breakdowns," Discussion Papers dp-02-37, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-02-37

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Sheshinski, Eytan & Dreze, Jacques H, 1976. "Demand Fluctuations, Capacity Utilization, and Costs," American Economic Review, American Economic Association, vol. 66(5), pages 731-742, December.
    2. Kenneth J. Arrow & David Levhari & Eytan Sheshinski, 1972. "A Production Function for the Repairman Problem," Review of Economic Studies, Oxford University Press, vol. 39(3), pages 241-249.
    3. Levhari, David & Sheshinski, Eytan, 1970. "A Microeconomic Production Function," Econometrica, Econometric Society, vol. 38(3), pages 559-573, May.
    4. Mulligan, James G, 1983. "The Economies of Massed Reserves," American Economic Review, American Economic Association, vol. 73(4), pages 725-734, September.
    5. Mulligan, James G., 1986. "Technical change and scale economies given stochastic demand and production," International Journal of Industrial Organization, Elsevier, vol. 4(2), pages 189-201, June.
    6. Deaton, Angus & Laroque, Guy, 1996. "Competitive Storage and Commodity Price Dynamics," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 896-923, October.
    Full references (including those not matched with items on IDEAS)

    More about this item


    reliability; boutique fuels; gasoline price spikes; stochastic failures; environmental regulation; tailored regulation;

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    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:rff:dpaper:dp-02-37. 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: (Webmaster). General contact details of provider: .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.