Advance notice of real-time electricity prices

Many utilities are offering real-time pricing (RTP) to their large industrial customers. Under RTP, hourly rates change with real-time supply and demand. As compared to fixed rates, RTP shifts price risk from the utility to the customer. With such a change, it is natural to ask if there is an optimal level of advance notice of prices. This paper contains a simulation of real-time rates for industrial customers with and without advance notice of prices. Advance notice is valuable to customers who can increase elasticity of substitution. This value must be weighed against the cost to the electric utility from an increase in demand forecast error. The simulation suggests that day-ahead advance notice increases welfare for reasonable magnitudes of customer elasticity and utility forecast error.This material was prepared with the support of the U.S. Department of Energy, Grant No. DE-FG48-95R810582 A000. However, any opinions, findings, conclusions, or recommendations expressed herein are those of the authors and do not necessarily reflect the views of the U.S. Department of Energy. This work was also supported in part by funds provided by the University of North Carolina, a Barclays American Research Award, and the Belk College of Business Administration. The authors are grateful for comments provided by Steve Braithwait, Laurence Kirsch, Steve Johnston, Peter Griffes, John Trapani, Mike O'Sheasy, and participants of Research Triangle Institute, Western Economic Association, and Rutgers University Center for Research in Regulated Industries Advanced Workshop in Regulation and Public Utility Economics.     

Impact of institutions on cross-border price dispersion

This paper analyzes the role of institutions in price dispersion among cities in the European region in the 1996–2009 period. An overview of the literature on the border effect reveals that the role of institutions is completely neglected. Using the Worldwide Governance Indicators as explanatory variables I find that the better the institutions, the lower the predicted dispersion. The result is robust to different specifications of the regression model and it is consistent with a hypothesis that arbitrage, as an entrepreneurial activity and the main power behind the law of one price, is influenced by institutional quality.     

Are hedge fund managers systematically misreporting? Or not?

A discontinuity, or kink, at zero in the hedge fund net return distribution has been interpreted as evidence of managers manipulating returns to avoid showing small losses. Instead, we propose alternative explanations for this phenomenon. In particular, we show that incentive fees can mechanistically create a kink in the net return distribution. This mechanism accounts for almost the entire kink observed in the large, liquid Long-Short Equity style. Furthermore, we show that asset illiquidity and the bounding of yields at zero can generate distribution discontinuities as well. Therefore, we conclude that the observed hedge fund return discontinuities are not direct proof of manipulation.     

Is fixed-mobile substitution strong enough to de-regulate fixed voice telephony? Evidence from the Austrian markets

In this paper, we estimate own-price elasticities for fixed network voice telephony access and national calls services for private users as well as cross-price elasticities to mobile services using time series data from 2002 to 2007 from the Austrian markets. Using instrumental variable estimates and considering cointegration, we find that access is inelastic while calls are elastic. We conclude that the retail market for national calls of private users can probably be deregulated due to sufficient competitive pressure from mobile. Access-substitution on the other hand does not seem to be strong enough to justify de-regulation.     

Bounding the future: The use of scenarios in assessing climate change impacts

This paper investigates the contribution of socio-economic scenarios to improve decisions and policies in climate assessments. We specifically looked at adaptation projects in the Dutch Climate changes Spatial Planning programme. Based on the four decision failure criteria neglect of internal information, bounded rationality, insufficient expansion of existing mental models and stickiness and lack of friction of information and knowledge, it was concluded that in these projects, socio-economic scenarios appear to generate useful data, but that their full potential to reduce decision failure is not likely to be exploited. Therefore adaptation options suggested by these studies may not be ‘future-proof’: they may be appropriate in some future societies, but fail in others. We believe similar results would be obtained in other contexts. Possible decision failures are caused by neglecting socio-economic developments, limiting the number of storylines generated by scenario studies to one or two, lack of stakeholder involvement in the scenario development and ignoring discontinuities.