The Fairness Criterion in Public Utility Regulation: Does Fairness Still Matter?

Jones, Douglas N.; Mann, Patrick C.

doi:10.1080/00213624.2001.11506345

Cited by 16 publications

(12 citation statements)

References 2 publications

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“…There are two differences between our model and those, however. First, many of these models make reduced-form assumptions (either in the utility function or directly in the demand curve) to 2For surveys of the literatures bringing fairness into economics, see Fehr and Gachter (2000), Jones and Mann (2001), and Fehr, Goette, and Zehnder (2009). obtain a nonconstant price elasticity of demand; our model provides a microfoundation for this property.…”

Section: Introductionmentioning

confidence: 99%

Pricing when Customers Care about Fairness but Misinfer Markups

Eyster

Madarász

Michaillat

2017

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This paper proposes a theory of price rigidity consistent with survey evidence that firms stabilize prices out of fairness to their consumers. The theory relies on two psychological assumptions. First, customers care about the fairness of prices: fixing the price of a good, consumers enjoy it more at a low markup than at a high markup. Second, customers underinfer marginal costs from prices: when prices rise due to an increase in marginal costs, customers underappreciate the increase in marginal costs and partially misattribute higher prices to higher markups. Firms anticipate customers' reaction and trim their price increases. Hence, the passthrough of marginal costs into prices falls short of one-prices are somewhat rigid. Embedded in a simple macroeconomic model, our pricing theory produces nonneutral monetary policy, a short-run Phillips curve that involves both past and future inflation rates, a hump-shaped impulse response of output to monetary policy, and a nonvertical long-run Phillips curve.

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Section: Introductionmentioning

confidence: 99%

Pricing when Customers Care about Fairness but Misinfer Markups

Eyster

Madarász

Michaillat

2017

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“…Or is it fair in order to promote efficient cost allocation? To which degree is the fairness goal more important in matters of regulatory process or more important in regulatory outcomes, is a question that commissioners' response varied to widely according to a survey carried out in [35]. Other side-effects could be through avoiding network charges causing cross-subsidization.…”

Section: Recognition Of Side Effects On Consumersmentioning

confidence: 99%

Evaluation Methodology for Tariff Design under Escalating Penetrations of Distributed Energy Resources

2017

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Abstract:As the penetration of distributed energy resources (DERs) escalates in distribution networks, new network tariffs are needed to cope with this new situation. These tariffs should allocate network costs to users, promoting an efficient use of the distribution network. This paper proposes a methodology to evaluate and compare network tariff designs. Four design attributes are proposed for this aim: (i) network cost recovery; (ii) deferral of network reinforcements; (iii) efficient consumer response; (iv) recognition of side-effects on consumers. Through an analytical hierarchy process (AHP), the evaluation methodology is applied to compare traditional cost allocation methods, on the basis of 100% energy, 100% demand, and 50% energy-50% demand, with more advanced pricing methods based on distribution locational marginal prices in combination with cost-reflective network charges. Numerical results are obtained through a case study based on the IEEE 34-node test feeder with DER integration. The results illustrate the advantage of advanced pricing methods to promote an efficient integration of DER and demand price-response from consumers.

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“…3 This focus on fairness or equity does not seem to be a recent innovation. Indeed, Jones and Mann (2001) point out that concern for fairness and justice dates back to the origins of public-utility regulation:…”

Section: What Is Fairness and Why Is There A Need To Explain It?mentioning

confidence: 99%

“…14 As an aside, there is of course, an equal-and-opposite view (not usually held by economists) that fairness and equity considerations must be paramount in the mind of the regulator, with allocative efficiency subordinate where it is considered at all. For example, Jones and Mann (2001) report that many regulators view fairness and equity considerations as more important than economic efficiency as conventionally defined.…”

Section: The 'Conflict' Responsementioning

confidence: 99%

“…This doesn't seem to be the case. In a survey of US state and federal regulatory commissioners, Jones and Mann (2001) found no indication that fairness is ranked lower than other goals of regulation than it was in the past. All but 4 per cent of the respondents ranked fairness as 'either more important, or as 3 For example, Berg and Tschirhart (1995: 324): '…The fact is that most regulators do not view the world as economists view it.…”

mentioning

confidence: 99%

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