Impacts of Long-Range Increases in the Corporate Average Fuel Economy (CAFE) Standard

CAFE standards have been in place since 1978. After the increase in petroleum prices in 1998-99, CAFE standards again arose as a public policy issue. This paper attempts to model the impact of higher CAFE standards on producer and consumer welfare, gasoline consumption, externalities from increased driving, and the emissions of traditional pollutants, given that CAFE standards are successful in inducing manufacturers to engage in technology forcing. The study then examines CAFE standards from a cost-benefit and a cost-effectiveness viewpoint. In particular, a long-run 3.0 MPG increase in the CAFE standard would impose social welfare losses of $5.556 billion per year and save 5.1 billion gallons of gasoline per year. This amounts to a hidden tax of$1.09 per gallon conserved. An 11 cent per gallon increase in the gasoline tax would save the same amount of fuel at a welfare cost of $275 million per year. The 3.0 MPG increase is thus 20 times more expensive than the gas tax increase. The marginal welfare costs of long-term increases in the CAFE standard amount to$1.26 per gallon and exceed by a factor of five recent estimates of the marginal societal benefits from avoided externalities. Increasing the CAFE standard is therefore neither cost-effective nor cost-beneficial.

Index Manipulation, the CFTC, and the Inanity of DiPlacido

Commodity markets are designed to enhance the flow of commoditiesand reduce risks for both buyers and sellers. Unfortunately, these marketscan be open to market manipulation, with economic actors functioning todistort markets and gain profits from engaging in activities that distortprices. This issue has increased in prominence over the last several yearsdue to concerns about the manipulation of various energy markets. The nature of market manipulation, the role of the primary enforcer ofsuch rules -- the Commodity Futures Trading Commission (CFTC), and itsrecent decision in DiPlacido are reviewed in this paper. The CFTC decision demonstrates its deficient understanding of both manipulationlaw and the actual workings of commodity markets. In particular, the CFTC appears to have no ability to discern the difference between procompetitivetrading according to supply-and-demand forces, and themarket manipulation that destroys markets. This raises significantquestions about whether the CFTC, the designated expert agency in thisarea, can be trusted to protect commodity markets from manipulation.

Increasing CAFE Standards: Still a Very Bad Idea

In a recent Joint Center Working Paper, Gerard and Lave respond to our recent work critiquing proposed increases in existing Corporate Average Fuel Economy (CAFE) standards. Gerard and Laveassert that, at least in the right environment, there is a place for CAFE standards. We suggest, however, that Gerard and Lavehave not really made any dent in our arguments, and have not provided any rationale for the CAFE program to exist. Indeed, much of the Gerard and Lave'sargument is self-contradictory.

The Complexity Dilemma in Policy Market Design

Regulators are increasingly pursuing their policy objectives by creating markets. To create a policy market, regulators require firms to procure a product that is socially useful but that confers little direct private benefit to the acquiring party. Examples of policy markets include pollutant emissions trading programs, renewable energy credit markets, and electricity capacity markets. Existing scholarship has tended to analyze policy markets simply as market-based regulation. Although not inaccurate, such inquiries are necessarily incomplete because they do not focus on the distinctive traits of policy markets. Policy markets are neither typical regulations nor typical markets. Concentrating on policy markets as a distinctive type of market brings to light common characteristics of such markets, which in turn generates insights into how they can be used more effectively to implement policy. In particular, this Article focuses on a recurring fundamental challenge in policy market design: managing complexity. Typical markets manage complexity through market forces. As a regulatory creation, however, policy markets require regulators to manage their complexity. This poses what we call the complexity dilemma, which requires regulators to balance strong pressures both toward and away from complexity. The central argument of this Article is that although policy markets are an important part of a regulator’s toolkit, they are also subject to complexity that limits their usefulness. Understanding the complexity dilemma and its crucial role in policy market design forms an essential step toward progress in improving the design and function of these markets

CAFE Adieu

In a recent paper, Gerard and Lave critique an analysis by Kleit and Lutter, and contend that there are sound economic reasons for CAFE. In this paper Kleit argues that Gerard and Lave fail to present any new arguments for the implementation of CAFE standards.

Commodity Exchanges and Antitrust

Historically, commodity exchanges have been viewed as natural monopolies, not subject to competitive forces. But in recent years, both technology and regulatory changes have allowed for competition between rival exchanges in various contracts. With competition comes the regulation of competition. The traditional method of regulating competition is through court adjudication of the Sherman Antitrust Act. But in regulated industries, antitrust authority must be shared in some way with the regulatory authority. Then, it must be implemented by the relevant government entity. This article will explore the impact of competition on this industry and how the exchanges are dealing with the resulting antitrust issues. Not surprisingly, there have been several allegations of anticompetitive activity in violation of the antitrust laws of the United States. Indeed, at least two lawsuits have been filed, and one complaint has been brought to the Commodity Futures Trading Commission (“CFTC”). Here we review the economics of commodity exchanges, and the nature of competition between exchanges. We then examine the new forces for competition in exchanges offering commodity contracts. After this introduction to commodity exchanges, we review the basic economic and legal foundations of antitrust law. We then provide an analysis of antitrust mandate of the CFTC and examine the legal doctrine of implied immunity as it applies to the CFTC. Finally, we discuss various types of antitrust cases, and applies these legal and economic theories to recent case

Grid Governance in the Energy-Trilemma Era: Remedying the Democracy Deficit

Transforming the electric power grid is central to any viable scenario for addressing global climate change, but the process and politics of this transformation are complex. The desire to transform the grid creates an “energy trilemma” involving often conflicting desires for reliability, cost, and decarbonization; and, at least in the short run, it is difficult to avoid making tradeoffs between these different goals. It is somewhat shocking, then, that many crucial decisions about electric power service in the United States are made not by consumers or their utilities, nor by state public utilities commissions or federal regulators. Instead, for much of the country, those decisions are made by entities known as regional transmission organizations (RTOs). These RTOs, which straddle and blur the boundary between private and public methods of social ordering, establish and run wholesale electricity markets, coordinate dispatch, keep the grid in balance, and plan infrastructure for the grid of the future. These responsibilities put RTOs at the center of the energy trilemma—a position that sits in significant tension with their ambiguous status, incentives, and accountability.To fully understand how RTOs work and the role they are playing in the energy transition, it is necessary to examine where they came from, what assumptions animated their creation, and, finally, how those assumptions have been undermined by the changing landscape of the energy sector. This article aims to both explain what RTOS have become and highlight what might need to change to make them effective arbiters of the tensions at the heart of the energy trilemma. Our central argument is that RTOs emerged as institutions wedded to a peculiar model of democratic governance—corporatism—that no longer fits in the trilemma era. Corporatist governance lodges responsibility for negotiating public policy in an exclusive committee of representative stakeholders from the private sphere, and this neatly encapsulates the historical roots and contemporary practice of RTOs. However, we argue that the challenges facing the corporatist model of grid governance have become intractable, as the energy trilemma has not only raised the stakes of the tradeoffs involved but has also introduced new tradeoffs and new stakeholders who have no seat at the corporatist table. As a result, a democratic deficit threatens to impede efforts to navigate the energy trilemma unless reforms are implemented—specifically, reforms to make RTOs more open and responsive to the full range of stakeholders in the energy trilemma era

The Effect of Direct to Consumer Television Advertising on the Timing of Treatment

We examine how direct to consumer advertising (DCA) affects the delay between diagnosis and pharmacological treatment for patients suffering from a common chronic disease. The primary data for this study consist of patients diagnosed with osteoarthritis (N=18,235) taken from a geographically diverse national research network of 72 primary care practices with 348 physicians in 27 states over the 1999 to 2002 time period. Brand specific advertising data was collected for local and network television at the monthly-level for the nearest media markets to the practices. Results of duration models of delay to treatment suggest advertising does affect the length of time that patients and physicians wait to initiate therapy. This evidence suggests these effects may be welfare enhancing, in that advertising tends to encourage more rapid adoption among patients who are good clinical candidates for the therapy, and leads to less rapid adoption among some patients who are poor clinical candidates.Health and Safety, Technology and Industry