Essays In Behavioral And Energy Economics

Abstract

This thesis presents three studies in behavioral and energy economics. The first two use laboratory experiment to show how individuals make decisions under risk and uncertainty. The third study uses a simulation tool to investigate the environmental effect of an institutional change. Study 1 studies reference dependent behavior under risk using a controlled laboratory experiment and demonstrates the need of probability weighting in explaining the observed behavior. The paper also suggests a behavioral model that explains reference dependence under risk using loss aversion and rankdependent probability weighting. The behavioral model used in the estimation is flexible enough to accommodate both expected utility theory and prospect theory as special cases. Study 2 conducts a set of laboratory experiments on a simulated hazard event to understand how individuals allocate resources between private insurance and public good measures to reduce the likelihood of the hazardous event. By inducing negative emotions with distressing video images and very loud unexpected sounds of explosions, we find that fear increases support for both public measures and private insurance in response to the threat. Our findings suggest that people purchase private insurance to address emotional as well as financial concerns even though private insurance may not help to reduce negative emotions associated with the simulated events. We also propose a model using Subjective Expected Utility (SEU) theory to explain the experimental data. Results imply that limited social resources may not be efficiently allocated between public and private solutions regarding uncertain hazardous events due to emotional responses. Study 3 uses a detailed simulation tool (E4ST) of the Eastern Interconnect (EI) to identify the environmental effect of RTP in different regions. The simulation uses a detailed network model which contains all high voltage lines in EI. Moreover, it also accommodates different hour types so we are able to simulate consumption pattern changes. Using generator level cost and emission data, we conduct two sets of simulations. The first set simulates consumption change under different demand elasticities while the second set keeps consumption constant and investigates how load variation affects emissions. We reach a similar conclusion as Holland and Mansur (2008) that RTP may lead to high emission levels in some regions but our results explain this conclusion with different reasons