Efficient cost sharing with a cheap residual claimant

For the cooperative production problem where the commons is a one dimensional convex cost function, I propose the residual mechanism to implement the efficient production level . In contrast to the familiar cost sharing methods such as serial, average and incremental, the residual mechanism may subsidize an agent with a null demand. IFor a large class of smooth cost functions, the residual mechanism generates a budget surplus that is, even in the worst case, vanishes as 1/logn where n is the number of participants. Compare with the serial, average and incremental mechanisms, of which the budget surplus, in the worst case, converges to the efficient surplus as n grows. The second problem is the assignment among n agents of p identical objects and cash transfers to compensate the losers. We assume pn/2, it may even fail to achieve voluntary participation

Understanding Ownership Residual Rights of Control and Appropriable Control Rights

We discuss the notion of ownership in economics, taking our point of departure in the Grossman-Hart-Moore property rights approach. We criticize the exclusive identification of ownership with residual rights to control in this approach, and argue that economic organization may be rendered determinate under complete contracting (contrary to the GHM approach). Crucially, we argue that under complete contracting, some control rights may be appropriable because of measurement and enforcement costs. This holds the key to a theory of ownership that is not dependent on the notion of residual rights to control, but rather relies on appropriable control rights. However, the two perspectives may be complementary rather than rival.Ownership, property rights, complete and incomplete contracts

Translating Principles Into Practice in Regulation Theory

Regulators must understand basic principles of regulation, to explain with credibility their decissions, to asess the universality of the proposals, to develop new solutions, etc. For the relevance of economic theory, economists must fight to include in their frameworks enough constraints, as regulators face in practice, including technology constraints, even informational constraints, bureaucratic and political ones. Debates on regulation are turning around the world more important, defining the discussion frontier about the role of government in the economy.regulation; economic theory; government in the economy

Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency

This paper explores the empirical effects of competition on technical efficiency in the context of electricity industry restructuring. Restructuring programs adopted by many U.S. states made utilities residual claimants to cost savings and increased their exposure to competitive markets. We estimate the impact of these changes on annual generating plant-level input demand for non-fuel operating expenses, the number of employees and fuel use. We find that municipally-owned plants, whose owners were for the most part unaffected by restructuring, experienced the smallest efficiency gains over the past decade. Investor-owned utility plants in states that restructured their wholesale electricity markets had the largest reductions in nonfuel operating expenses and employment, while investor-owned plants in nonrestructuring states fell between these extremes. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach

The Liberalisation of the Energy Sector in the European Union

The energy sector covers the coal, oil, gas and electricity sector. The European coal and oil sector have already been liberalised in the past. The current debate concerns mainly the electricity and the gas sector. In this paper we will concentrate on the electricity sector for three reasons. First, the sector is more important in terms of value added, secondly it is considered to be more complex and, finally, the opening of the electricity market precedes that of the gas market. Obviously, this does not mean that the gas sector should not be studied as there are many challenges left. In section II, we discuss the institutional background for the liberalisation. Section III then analyses the British experience. This is of interest because the UK has liberalised its market about 10 years ago and this experience has been the subject of extensive economic research. In the sections IV to VII, we focus on the four main problems in the liberalisation of the European electricity market: the stranded costs issue, the cross-subsidies issue, the pricing of transmission and the regulation of the environment. Finally, section VIII concludes.

The liberalisation of the energy sector in the EU.

Sector;

Standard Breach Remedies, Quality Thresholds, and Cooperative Investments

When investments are non-verifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling 'expectation damages' close to legal practice, we show that the default remedy of contract law induces the first best. Yet, in order to lower informational requirements of courts, parties may opt for a 'specific performance' regime which grants the breached-against buyer an option to choose 'restitution' if the tender's value falls below some (exogenously given) quality threshold. In order to implement this regime, no more information needs to be verifiable than is implicitly assumed in Che and Hausch (1999)

Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency

This paper explores the empirical effects of competition on technical efficiency in the context of electricity industry restructuring. Restructuring programs adopted by many U.S. states made utilities residual claimants to cost savings and increased their exposure to competitive markets. We estimate the impact of these changes on annual generating plant-level input demand for non-fuel operating expenses, the number of employees and fuel use. We find that municipally-owned plants, whose owners were for the most part unaffected by restructuring, experienced the smallest efficiency gains over the past decade. Investor-owned utility plants in states that restructured their wholesale electricity markets had the largest reductions in nonfuel operating expenses and employment, while investor-owned plants in nonrestructuring states fell between these extremes. The analysis also highlights the substantive importance of treating the simultaneity of input and output decisions, which we do through an instrumental variables approach.Efficiency, Production, Competition, Electricity restructuring, Electric Generation, Regulation