Using Laboratory Experiments to Design Efficient Market Institutions: The Case of Wholesale Electricity Markets

Staropoli, Carine; Jullien, Céline

doi:10.1111/j.1467-8292.2006.00319.x

Cited by 23 publications

(11 citation statements)

References 23 publications

(24 reference statements)

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“…Normann and Ricciuti (2009) survey this literature, including experiments concerning public utilities. More specifically, Staropoli and Jullien (2006) and Kiesling (2005) survey the use of laboratory experiments for the design of energy market regulation. These experiments inform regulatory politics about the comparative advantages and disadvantages of competing proposals for intervention, and aim at spotting unanticipated counterproductive effects before a new policy is implemented (fine examples include Brandts et al 2008;Henze et al 2012;Kench 2004;Rassenti et al 2003;Vossler et al 2009).…”

Section: Related Literaturementioning

confidence: 99%

The dark side of price cap regulation: a laboratory experiment

Engel

Heine

2017

Public Choice

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In a nutshell, price cap regulation is meant to establish a quid pro quo: regulators are obliged by law to intervene only at rare, previously defined points in time, and only by imposing an upper bound on prices; firms are meant to justify regulatory restraint by adopting socially beneficial innovations. In the policy debate, a potential downside of the arrangement has featured less prominently: the economic environment is unlikely to be stable while the cap is in place. If regulators take this into account, they have to decide under uncertainty and also anticipate how regulated firms will react. In a lab experiment, we manipulate the degree of regulatory uncertainty. We compare a baseline when regulators have the same information as firms about demand with treatments wherein they receive only a noisy signal and another when they know only the distribution from which demand realizations are taken. In the face of uncertainty, regulators impose overly generous price caps, which firms exploit. In the experiment, the social damage is severe, and does not disappear with experience.

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Section: Related Literaturementioning

confidence: 99%

The dark side of price cap regulation: a laboratory experiment

Engel

Heine

2017

Public Choice

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“…Important early contributions include work on the allocation of airport landing slots (Grether et al 1981) and gas pipelines (McCabe et al 1989(McCabe et al , 1990. See Staropoli and Jullien (2006) for a survey of experiments focused on electricity markets, and Normann and Ricciuti (2009) for a survey of experimental work on economic policy issues.…”

Section: Previous Related Experimental Workmentioning

confidence: 99%

Regulation of network infrastructure investments: an experimental evaluation

2012

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This paper reports the results of an experiment evaluating three regulatory schemes for network infrastructure, in terms of their ability to generate efficient levels of capacity investment. We compare the performance of (1) price cap regulation, (2) a regulatory holiday for new capacity, and (3) price cap regulation with long term contracts combined with a secondary market. The setting is one in which network users can benefit from acting strategically, and are better informed than the network operator about demand growth. We find that the regulatory holiday creates an incentive to underinvest relative to optimal levels. Long term contracts also fail to improve on single price-cap regulation, and may reduce investment by providing noisier signals about future demand.

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“…Staropoli and Jullien (2006) also revise the contribution of laboratory experiments up to this date to understand the functioning of wholesale electricity markets. They focus in the market architecture but also ancillary rules to argue that complementary approaches to auction theory are very useful to regulator authorities to improve market efficiency.…”

Section: Literature Reviewmentioning

confidence: 99%

Vertical separation vs. independent downstream entry in an electricity network: Experimental insights

Ciarreta

Fatás

Georgantzı́s

et al. 2017

Electric Power Systems Research

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We analyze a realistic simulation of a complex electricity network. We obtain the data with a series of experimental sessions designed to closely replicate the Spanish Electricity Market. In the experiments reported here we compare the status quo with two alternative regulatory market structures. In one of them, labeled as vertical separation, we impose that power generating firms and electricity distributors operate as independent business groups. In the second, we study the effect of entry by independent end-suppliers. Both alternative scenarios dominate the status quo in terms of market efficiency, but the latter of them dominates the former.

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Using Laboratory Experiments to Design Efficient Market Institutions: The Case of Wholesale Electricity Markets

Cited by 23 publications

References 23 publications

The dark side of price cap regulation: a laboratory experiment

The dark side of price cap regulation: a laboratory experiment

Regulation of network infrastructure investments: an experimental evaluation

Vertical separation vs. independent downstream entry in an electricity network: Experimental insights

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