19 research outputs found
The Trade-off Between Static and Dynamic Efficiency in Electricity Markets - A Cross Country Study
This paper is the first to explicitly test for the presence of a trade-off between static and dynamic
efficiency in a regulated industry, the electricity industry. We show for 16 European countries over the
period 1998-2007 that higher electricity end-user prices in a country subsequently lead to higher
investments in the capital stock, i.e. in generation, distribution and transmission assets. Moreover,
there is a trade-off between vertical economies and competition. Ownership unbundling and forced
access to the incumbent transmission grid increase competition but come at the cost of lost vertical
economies. Generally, we find that regulation that affect only the market like the establishment of a
wholesale market or free choice of suppliers increase investment activity via spurring competition.
Regulation, however, that adversely affects the incumbent directly, like ownership unbundling,
decreases aggregate investment spending. (author's abstract)Series: Working Papers / Research Institute for Regulatory Economic
Preventing Innovative Cooperations: The Legal Exemptions Unintended Side Effect
In 2004, European competition law had been faced with considerable changes due to the introduction of the new Council Regulation No. 1/2003. One of the major renewals was the replacement of the centralized notification system for inter-company cooperations in favor of a so-called legal exemption system. We analyze the implications of this reform on the agreements firms implement. In contrast to previous research we focus on the reformâs impact on especially welfare enhancing, namely innovative agreements. We show that the lawâs intention to reduce the incentive to establish illegal cartels will be reached. However, by the same mechanism, also highly innovative cooperations might be prevented. To avoid this unintended effect, we conclude that only fines but not the monitoring activities should be increased in order to deter illegal but not innovative agreements.competition policy, competition law enforcement, legal exemption system
Theory of Storage: An Empirical Assessment of the European Natural Gas Market
We analyze the relation between European natural gas storage facilities and price patterns at major trading points, considering the theory of storage to derive a testable hypothesis imposed by the non-arbitrage condition. To model the efficiency of the natural gas market, we apply two indirect tests absent the scarcity of European inventory data. We find that operators of storage facilities realize seasonal arbitrage profits, and that market performance overall is substantially distinct from the competitive benchmark.Storage, energy commodity, natural gas, convenience yield
Predictive Performance and Bias - Evidence from Natural Gas Markets
This paper sheds light on the differences and similarities in natural gas trading at the National Balancing Point in
the UK and the Henry Hub located in the US. For this, we analyze traders' expectations and implement a
mechanical forecasting model that allows traders to predict future spot prices. Based on this, we compute the
deviations between expected and realized spot prices and analyze possible reasons and dependencies with other
market variables. Overall, the mechanical predictor performs well, but a small forecast error remains which can
not be characterized by the explanatory variables included
Internal capital markets and bank holding company efficiency
Bank Holding Companies and in particular their internal capital markets have been widely discussed in recent financial literature. The financial crisis especially brought regulatory intervention in financial markets into question. Empirical evidence suggests that bank holding companies have clear preferences for double leverage, which
are not based on unambiguous and explicit economic foundations. In this article, we analyze the effects of equity, debt and double leverage on the efficiency of bank
holding companies. We show that Bank Holding Company efficiency is negatively affected by equity financing from parents to subsidiaries and this effect is even more
pronounced in case of double leveraging. Our findings indicate that further measures from regulators are necessary in order to prevent inefficient financing via double
leverage, which may be used to circumvent regulatory capital requirements
Markowitz Revisited: Social Portfolio Engineering
In recent years socially responsible investing has become an increasingly more
popular subject with both private and institutional investors. At the same time, a
number of scientific papers have been published on socially responsible investments
(SRIs), covering a broad range of topics, from what actually defines SRIs to the
financial performance of SRI funds in contrast to non-SRI funds. In this paper, we
revisit Markowitz' Portfolio Selection Theory and propose a modification allowing
to incorporate not only asset-specific return and risk but also a social responsibility
measure into the investment decision making process. Together with a risk-free asset,
this results in a three-dimensional capital allocation plane that allows investors to
custom-tailor their asset allocations and incorporate all personal preferences regarding
return, risk and social responsibility. We apply the model to a set of over 6,231
international stocks and find that investors opting to maximize the social impact
of their investments do indeed face a statistically significant decrease in expected
returns. However, the social responsibility/risk-optimal portfolio yields a statistically
significant higher social responsibility rating than the return/risk-optimal portfolio
Reflection on Robotic Intelligence
This paper reflects on the development or robots, both their
physical shape as well as their intelligence. The later
strongly depends on the progress made in the artificial
intelligence (AI) community which does not yet provide the
models and tools necessary to create intelligent robots. It is
time for robot developers to take this matter into their own
hands and build embodied intelligence
The Value and Risk Implications of Grid Expansion Investments
In this article, we look at a model with (independent) system operator who faces stochastic but growing transmission demand and a penalty if frequency
is not balanced. In this set up, we derive an optimal grid expansion investment strategy and analyze its value and risk implications. It turns out that
the firm value is strictly concave in the level of transmission demand. Firm value, however, increases with optimal investment for any level of demand.
Moreover, firm risk is decreasing in the level of demand and higher when the firm has an investment option. The risk increase corresponds to the exercise of the call option and is stronger, the closer the firm approaches its exercise
trigger. (author's abstract)Series: Working Papers / Research Institute for Regulatory Economic
The Impact of Different Unbundling Scenarios on Concentration and Wholesale Prices in Energy Markets
A recent highly disputed subject of regulating energy markets in Europe is the unbundling of
vertically integrated down- and upstream firms. While legal unbundling is already implemented in
most countries and indisputable in its necessity for approaching regulatory aims, continuative models
as ownership unbundling or the alternative of an independent system operator are still ambiguous.
Hence, this article contributes to the economic analyses of identifying the differences of separate
types of unbundling. Via simulation, we find that legal unbundling brings about the lowest prices in
a market under Cournot competition. Moreover, under Bertrand competition, no differences between
legal unbundling and ownership unbundling can be identified. (author's abstract)Series: Working Papers / Research Institute for Regulatory Economic