umbrella branding with imperfect observability and moral hazard abstract in a framework of repeated purchase experience goods with seller s moral hazard and imperfect monitoring umbrella branding may improve the terms of the implicit contract between seller and buyers whereby the seller invests in quality and buyers pay a high price in some cases umbrella branding leads to a softer punishment of product failure which increases the seller s value in other cases umbrella branding leads to a harsher punishment of product failure which allows for a reputational equilibrium that would otherwise be impossible on the negative side under umbrella branding one bad signal may kill two revenue streams not one combining costs and benefits i determine the set of parameter values such that umbrella branding is an optimal strategy

interruptible electric power service contracts abstract a two period model is considered in period 1 the electric power company offers for sale a set of contracts 1 p 1 2 p 2 each consumer must select one contract k and d units of energy for which she pays p k d the company must deliver d units of energy in period 2 with probability k the service may be interrupted with the complementary probability 1 k the problem is to design the optimal set of contracts to maximize social welfare when demand and supply may be random and when customers suffer a welfare loss due to service interruption the best design is shown to be a solution to an optimal control problem the results contrast sharply with previous work on the problem of pricing electric power in the face of random supply or demand

designing self reporting regimes to encourage truth telling an experimental study abstract we report results from an experiment that investigates truthfulness in self reporting under different reporting regimes the experiment involves a production task with self reporting of accidents with reporting compulsory for some participants but only voluntary for others we find that dishonesty is prevalent but accident reporting is more frequent with compulsory reporting compared with voluntary our results suggest that the lie aversion effect is stronger than any potential crowding out of intrinsic motivation to voluntarily report and that careful design of self reporting regimes is necessary by enforcement agencies to achieve satisfactory compliance outcomes our results are relevant for areas beyond regulatory compliance including dishonesty in social security claims insurance claims workplace expense claims income tax returns and financial reporting

incentive compatible pollution control policies under asymmetric information on both risk preferences and technology this article proposes a method to accommodate asymmetric information on farmers risk preferences in designing voluntary environmental policies by incorporating stochastic efficiency rules in a mechanism design problem the government can find incentive compatible policies by knowing only the general class of risk preferences among farmers the model also accounts for hidden information on technology types and input use the method is applied empirically to simulate a pollution control program in new york results suggest that participation incentives would be inadequate for many risk averse producers if the government does not account for the diversity in risk preferences

the effect of punishment on firm compliance with hazardous waste regulations abstract this paper examines the effect of epa s dramatic 1991 increase in the penalties associated with violations of hazardous waste regulations on firm compliance although data from epa s rcra information system show an increase in detected violations after the penalty change once inspection levels are incorporated into the analysis through a censored bivariate probit model i find that violations have decreased since the penalty change however the decrease in violations appears small relative to the increase in recommended penalty levels i also find evidence that the likelihoods of inspection and compliance vary significantly across regions

a survey of load control programs for price and system stability load control and demand side load management programs have been implemented in a large number of competitive power markets these programs can provide enhanced system security and many benefits to participants this paper reviews and compares existing economically driven programs

local matching of flexible load in smart grids abstract today s power systems are experiencing a transition from primarily fossil fuel based generation toward greater shares of renewable energy sources it becomes increasingly costly to manage the resulting uncertainty and variability in power system operations solely through flexible generation assets incorporating demand side flexibility through appropriately designed incentive structures can add an additional lever to balance demand and supply based on a supply model using empirical wind generation data and a discrete model of flexible demand with temporal constraints we design and evaluate a local online market mechanism for matching flexible load and uncertain supply under this mechanism truthful reporting of flexibility is a dominant strategy for consumers reducing payments and increasing the likelihood of allocation suppliers during periods of scarce supply benefit from elevated critical value payments as a result of flexibility induced competition on the demand side we find that for a wide range of the key parameters supply capacity flexibility level the cost of ensuring incentive compatibility in a smart grid market relative to the welfare optimal matching is relatively small this suggests that local matching of demand and supply can be organized in a decentral manner in the presence of a sufficiently flexible demand side extending the stylized demand model to include complementary demand structures we demonstrate that decentral matching induces only minor efficiency losses if demand is sufficiently flexible furthermore by accounting for physical grid limitations we show that flexibility and grid capacity exhibit complementary characteristics

regulatory dealing revisiting the harrington paradox abstract despite the fact that i when the epa observes regulatory violations it rarely pursues the violator and ii the expected penalty faced by a violator who is pursued is small compared to the cost of compliance it is still the case that iii firms comply a significant portion of the time winston harrington harrington w 1988 enforcement leverage when penalties are restricted journal of public economics 37 29 53 provides a dynamic model consistent with this apparent paradox we offer an alternative rationalisation in a model of regulatory dealing in which the agency uses tolerance in some contexts to induce increased compliance in others the observed tolerance of the epa to non compliance may be a strategic response by the agency to a difficult enforcement environment rather than evidence that it has gone soft on pollution or been captured by industry interests we use the model to consider the impact of the growing trend towards citizen suits and ngo enforcement of regulation arriving at some unconventional conclusions we argue that the model is consistent with existing empirical analyses

review of us esco industry market trends an empirical analysis of project data abstract this comprehensive empirical analysis of us energy service company esco industry trends and performance employs two parallel analytical approaches a survey of firms to estimate total industry size and a database of 1500 esco projects from which we report target markets and typical project characteristics energy savings and customer economics we estimate that industry investment for energy efficiency related services reached us 2 billion in 2000 following a decade of strong growth esco activity is concentrated in states with high economic activity and strong policy support typical projects save 150 200 mj m2 year and are cost effective with median benefit cost ratios of 1 6 and 2 1 for institutional and private sector projects the median simple payback time spt is 7 years among institutional customers 3 years is typical in the private sector reliance on dsm incentives has decreased since 1995 preliminary evidence suggests that state enabling policies have boosted the industry in medium sized states escos have proven resilient in the face of restructuring and will probably shift toward selling energy solutions with energy efficiency part of a package we conclude that appropriate policy support both financial and non financial can jump start a viable private sector energy efficiency services industry that targets large institutional and commercial industrial customers

the economics of energy service contracts energy service contracting can provide a cost effective route to overcoming barriers to energy efficiency energy service contracts allow the client to reduce operating costs transfer risk and concentrate attention on core activities however the energy services model may only be appropriate for a subset of energy services and energy using organisations a challenge for both business strategy and public policy is to identify those situations in which energy service contracting is most likely to be appropriate and the conditions under which it is most likely to succeed energy service contracting is a form of outsourcing it will only be chosen where the expected reduction in the production cost of supplying energy services can more than offset the transaction cost of negotiating and managing the relationship with the energy service provider production costs will be determined by a combination of the physical characteristics of the energy system and the technical efficiency of the relevant organisational arrangements including economies of scale and specialisation transaction costs in turn will be determined by the complexity of the energy service the specificity of the investments made by the contractor the competitiveness of the energy services market and the relevant legal financial and regulatory rules this paper develops these ideas into a general framework that may be used to assess the feasibility of energy service contracting in different circumstances the framework leads to a number of hypotheses that are suitable for empirical test

enforcement leverage when penalties are restricted in the united states empirical studies of the enforcement of continuous compliance with environmental regulations especially air and water pollution regulations have repeatedly demonstrated the following i for most sources the frequency of surveillance is quite low ii even when violations are discovered fines or other penalties are rarely assessed in most states iii sources are nonetheless thought to be in compliance a large part of the time the evidence for the apparently low level of enforcement activity is found in a number of case studies of state and local enforcement of air and water quality regulations conducted jointly by the environmental protection agency epa and council on environmental quality ceg together with periodic surveys of implementation of air and water quality legislation conducted by the general accounting office gao these surveys show

on the optimal product line selection problem with price discrimination product line design decisions are determinant for a firm s market success and simultaneously very costly to implement and change to evaluate the profitability of a design a number of mathematical programming approaches have been proposed in the last three decades typically nonlinear integer optimization problems that can only be tackled heuristically for real world instances recently chen and hausman 2000 efficiently exploited the fractional programming properties of a stylized model for product line and price selection with the objective to maximize contribution given homogeneous customer behavior by an aggregate multinomial logit choice model we extend the approach of chen and hausman chen k d w h hausman 2000 technical note mathematical properties of the optimal product line selection problem using choice based conjoint analysis management sci 46 2 327 332 to determine an optimal product line under a personalized or group pricing strategy in markets with multiple heterogeneous consumers such that total profit including fixed costs is maximized personalized group pricing is a growing discrimination strategy that more and more businesses are realizing is not only very profitable but also often implementable in the era of e business our problem formulation allows to incorporate commonly applied attraction choice models including the multinomial logit the bradley terry luce and approximately the first choice model though the problem is generally nonlinear we show that the fractional substructure resulting from attraction choice models can still be exploited to globally solve real world instances in reasonable time

a model of optimal fines for repeat offenders abstract this paper analyzes optimal fines in a model in which individuals can commit up to two offenses the fine for the second offense is allowed to differ from the fine for the first offense there are four natural cases in the model defined by assumptions about the gains to individuals from committing the offense in the case fully analyzed it may be optimal to punish repeat offenders more severely than first time offenders in another case it may be optimal to impose less severe penalties on repeat offenders and in the two remaining cases the optimal penalty does not change

how does market power affect the impact of large scale wind investment in energy only wholesale electricity markets in the short run it is well known that increasing wind penetration is likely to reduce spot market electricity prices due to the merit order effect the long run effect is less clear because there will be a change in new capacity investment in response to the wind penetration in this paper we examine the interaction between capacity investment wind penetration and market power by first using a least cost generation expansion model to simulate capacity investment with increasing amounts of wind generation and then using a computer agent based model to predict electricity prices in the presence of market power we find the degree to which firms are able to exercise market power depends critically on the ratio of capacity to peak demand for our preferred long run generation scenario we show market power increases for some periods as wind penetration increases however the merit order counteracts this with the results that prices overall remain flat returns to peakers increase significantly as wind penetration increases the market power in turn leads to inefficient dispatch which is exacerbated with large amounts of wind generation

noncompliant firms in transferable discharge permit markets some extensions abstract this paper extends the results of previous research on transferable discharge permit tdp markets with noncompliant firms to make a specific comparison between standards and tdp systems when regulatory authorities are unable to achieve full compliance particular attention is given to the importance of the shape of the penalty function facing noncompliant firms the analysis indicates that under plausible penalty functions tdp markets may allow more pollution or a higher fraction of regulated firms out of compliance these results highlight the importance of implementation in the success of pollution control strategies relying on tdp markets

the social welfare implications of industry self auditing the environmental protection agency s epa s audit policy authorizes reduced penalties for firms that voluntarily undertake compliance audits and then correct and report any discovered violations to the agency while the epa claims the policy is a success this paper joins a growing literature in questioning that claim a game theoretic model of the audit policy is developed where the goal of enforcement is remediation and the agency is unable to commit to a pre announced inspection policy self auditing is beneficial because it permits both self reporting and self policing to occur however additional costs are imposed on firms self auditing is more likely to be socially beneficial when the damages caused by violations are large the current audit policy explicitly excludes violations that result in serious actual or potential harm when violations are small as most current disclosures under the audit policy are firm self auditing is likely to increase social costs

us consumers willingness to pay for green electricity abstract we analyze us consumers demand for environmental attributes of deregulated residential electricity services using results from a survey designed to elicit consumers willingness to pay for such attributes and using results from a hedonic analysis of actual price premiums charged for green electricity in several deregulated markets survey results suggest that many population segments are willing to pay for decreased air emissions even if there is no alteration in fuel source furthermore several groups are willing to pay significantly more when emissions reductions stem from increased reliance upon renewable fuels the hedonic analysis suggests that several product features not considered in the survey help explain real price premiums including fuel mix from newly created renewable generation capacity green e certification brand name and state of offer while survey and hedonic results are not easily compared due to limitations of the survey both point to similar values for key environmental attributes though the survey results are likely to overstate actual willingness to pay in sum the results suggest that consumer driven purchases can in part support the future of renewable generation capacity in the united states though reliance upon other policy alternatives may be needed if energy prices spike

priority service pricing investment and market organization tingent forward delivery contracts offered by a seller each customer s selection of one contract from the menu determines the customer s service order or priority in each contingency the seller rations supplies by serving customers in order of their selected priorities until the supply is exhausted or all customers are served various forms of priority service are widely

reasonable doubt and the optimal magnitude of fines should the penalty fit the crime models of the enforcement compliance relationship have assumed that both the probability and magnitude of fines are independent choice variables of policy makers these models indicate that it may be optimal to monitor with lowfrequency but to inflict uniformly maximal penalties for all infractions detected this article shows that if the judicial system is built on the reasonable doubt test then the penalty and the probability of conviction are not independent in particular as the penalty increases the probability of conviction falls as a result uniformly maximal penalties may actually encourage crime rather than deter it this article shows that optimal fines should rise with the severity of the infraction that is the penalty should fit the crime models of the enforcement compliance relationship generally treat both the probability and magnitude of fines as independent choice variables of the government this approach has led becker 1968 and others to conclude that it is optimal to set uniformly maximal penalties for all crimes and to set the probability of conviction at the minimum level necessary to enforce compliance with the law while this normative prescription is natural and intuitive there still remains a larger positive question of why in most nations of the world penalties are not uniformly high but rather rise with the severity of the crime one possible resolution of the positive and normative questions may lie in the fact that penalties and probabilities of conviction are not generally independent convictions are typically determined by judges or jurors who are instructed to convict only if the evidence convinces them beyond a reasonable doubt that the accused is guilty psychologists however have found that a juror s willingness to convict may be influenced by more than just the evidence jurors are very sensitive to the potential penalties that defendants may pay

firms compliance to environmental regulation is there really a paradox it has often been claimed that firms compliance to environmental regulations is higher than predicted by standard theory a result labeled the harrington paradox in the literature enforcement data from norway presented here appears at first glance to confirm this stylized fact firms are inspected less than once a year detected violators are seldom fined but still serious violations seem relatively rare however at a closer look the pattern seems less paradoxical enforcement of minor violations is lax but such violations do flourish serious violations on the other hand are subject to credible threats of harsh punishment and such violations are more uncommon this seems quite consistent with predictions from standard theory we argue that the empirical existence of the harrington paradox is not well documented in the international literature the claim that firms compliance with environmental regulations is generally higher than predicted by standard theory should thus be regarded as a hypothesis rather than an established fact

liability and large scale long term hazards this paper analyzes the application of liability to large scale long term hazards the key features distinguishing such hazards are the long temporal separation between exposure to a hazard and disease and the large damages when injuries finally emerge the large scale of damages creates a strong incentive to avoid liability payments and the long temporal separation creates numerous avenues through which parties can avoid paying possible damage awards the analysis focuses on the incentive to avoid paying damages by vertically divesting production tasks associated with serious occupational risks such divestiture can lower liability costs if the small firm operating the risky stage goes out of business before latent injuries emerge or has insufficient assets to pay damages and declares bankruptcy when suits are filed the paper then presents an empirical regression analysis of small firm entry into the u s economy between 1967 and 1980 the period in which liability laws were changing the point estima

power tac a competitive economic simulation of the smart grid sustainable energy systems of the future will need more than efficient clean low cost renewable energy sources they will also need efficient price signals that motivate sustainable energy consumption as well as a better real time alignment of energy demand and supply the power trading agent competition power tac is a rich competitive simulation of future retail power markets this simulation will help us to understand the dynamics of customer and retailer decision making and the robustness of market designs by stimulating researchers to develop broker agents and benchmark them against each other this will provide compelling actionable information for policymakers and industry leaders we describe the competition scenario in detail and we demonstrate behaviors that arise from the interaction of customer and broker models

morphological analysis of energy services paving the way to quality differentiation in the power sector abstract the activation of the still predominantly passive demand side is necessary to further guarantee a stable power system in the short term and ensure capacity adequacy in the long run a system with a high share of generators with nearly no marginal costs requires new services that facilitate transmitting the right economic signals to the system stakeholders to this end we refine the notion of energy services and propose a framework to systematically design quality differentiated energy services for consumers this approach facilitates a value based economic assessment of energy services that deviates from the marginal cost paradigm we further illustrate pricing options for these new energy service products and outline infrastructural needs and additional use case specific product properties moreover we discuss how the morphological approach can be formalised using a mathematical programming formulation and introduce a complexity measure that facilitates assessing potential adoption obstacles for end consumers additionally we illustrate the practical applicability of these findings by using a prototypical implementation of a decision support system to foster differentiated energy services we recommend a more lenient regulatory regime lowering the barriers for new market entrants

cutting environmental penalties to protect the environment abstract when pollutants are persistent and the polluter has private information regarding the occurrence of accidental releases and the cost of clean up we show that the penalty regime which most effectively protects the environment will involve penalties which are less than maximal the extent to which these penalties will be less than maximal is interestingly a non monotonic function of the persistence of the hazardous substance being handled with the highest penalties being appropriate in the case of pollutants of medium persistence our analysis complement consisting work which predicts that setting the penalties faced by some classes of violator below their maximal level may be compliance enhancing see for example harrington journal of public economics 1988 37 29 53 greenberg journal of economic theory 1984 32 1 13 kambhu journal of regulatory economics 1989 1 103 114

bargaining in environmental regulation revisited abstract we explore the possibility that firms and regulators achieve cooperative agreements in environmental regulation we show that it is possible that firms choose cleaner technologies in exchange for reductions of the fines for non compliance with environmental standards interestingly the likelihood of achieving these agreements depends negatively on the monitoring costs positively on the external damages and non monotonically on the differences among the eligible technologies and the maximum sanctions for violating the standards

whatever the customer wants the customer gets exploring the gap between consumer preferences and default electricity products in germany abstract in liberalized electricity markets residential customers can choose their preferred provider and select among a variety of different electricity products including green power options successful product design and marketing strategies for green electricity may provide electricity providers with a competitive advantage while at the same time contributing to energy policy objectives this requires however a thorough understanding of customer preferences we investigate the relative importance of different product attributes in creating customer value and find that price and electricity mix are the two most important attributes the german electricity customers we surveyed in 2009 expressed an implicit willingness to pay a premium of about 16 for electricity from renewable sources we conclude that consumers are willing to pay a significant price premium for an upgrade from the current default electricity mix in germany to a more environmentally friendly default electricity mix and discuss implications for marketing strategy and energy policy our findings are based on a dataset of 4968 experimental choices made by 414 german residential consumers collected in a stated preference survey

avoiding tax avoidance a repeated game theoretic approach abstract we propose an optimal auditing scheme for the tax authorities who face a given tax and penalty functions and a given budget constraint under our proposed strategy individuals can be classified into one of three groups each group is characterized by two parameters i the probability of being audited in that group and ii into which group will an individual move if ii a he reported truthfully ii b he cheated it is then shown that there is a choice of these parameters so that in equilibrium i e when every individual maximizes his payoff given the auditing strategy the percentage of individuals that cheat is arbitrarily small

to comply or not to comply pollution standard setting under costly monitoring and sanctioning in this paper we characterize optimal regulatory policies composed of a pollution standard a probability of inspection and a fine for non compliance in a context where both monitoring and sanctioning are socially costly and the penalty may include gravity and non gravity components at the regulator s discretion under given penalties the optimal policy entails compliance with the standard as long as a quite intuitive condition is met non compliant policies may include standards even below the pollution levels that minimize the sum of abatement costs and external damages interestingly the appropriate structure of the penalty under non compliance is highly progressive while the best possible shape of the fine under compliance is linear if the regulator is entitled to choose the structure of the fine linear penalties are socially preferred and the optimal policy induces compliance

willingness to pay for green electricity in korea a contingent valuation study abstract green electricity is energy that is generated from renewable energy sources such as solar power wind power small scale hydroelectric power tidal power and biomass power these sources mostly do not produce pollutants and are considered environmentally friendly however considering the current state of technology they are more costly government should take visible actions to compensate for the increased production costs this paper attempts to apply a contingent valuation cv method to obtain at least a preliminary evaluation of the benefits that ensue from the introduction of the policy that raises the percentage of green electricity consumption from 0 2 of the total electricity supply to 7 by 2011 overall the cv survey was successful in eliciting the willingness to pay wtp for green electricity considering that the cv method operated within respondents abilities to answer and the wtp estimates were statistically significant the monthly mean wtp estimates from parametric and non parametric methods were krw 1681 usd 1 8 and krw 2072 usd 2 2 respectively the estimates of the annual benefits to relevant residents amounted to krw 150 5 billion usd 157 5 million and krw 185 6 billion usd 194 2 million respectively

environmental enforcement when inspectability is endogenous a model with overshooting properties if a firm can influence its monitorability vis a vis an environmental regulator it is shown that increasing the thoroughness of inspections induces the firm to substitute towards more transparent technologies whilst increasing their frequency may cause substitution the other way perversely when the effect of such substitution is taken into account an increase in the frequency of inspections or equally the stringency of penalties may worsen the firm s environmental performance the agency should favour more thorough inspections than existing theory suggests particularly in sectors where the scope for such substitution is great moreover when monitorability adjusts only sluggishly to policy shocks because it is an embodied characteristic of capital for example the environmental impacts of increased frequency and increased thoroughness well over and under shoot their respective long run impacts in assessing regulatory reform therefore it is important to leave sufficient time for the class of adjustments identified to occur the possibility of overshooting can be used as an alternative to existing regulatory capture theories to explain why the efficacy of some classes of regulatory reform may fade through time

a note on optimal fines when wealth varies among individuals an important result in the economic theory of enforcement is that under certain circumstances it is optimal for a fine to be as high as possible to equal the entire wealth of individuals such a fine allows the probability of detection to be as low as possible thereby saving enforcement costs this note shows that when the level of wealth varies among individuals the optimal fine generally is less than the wealth of the highest wealth individuals and may well be less than the wealth of most individuals this abstract was borrowed from another version of this item