1) Incomplete Regulation in an Imperfectly Competitive Market: The Impact of the Renewable Fuel Standard on U.S. Oil Refineries, Burkhardt_JMP_3_24
Abstract: Failing to account for imperfect competition, multi-product firms, or both when setting environmental policies can have unintended and unexpected welfare effects. I estimate how policy uncertainty and technology constraints that caused unexpected increases in the Renewable Fuel Standard (RFS) credit price affected U.S. oil refinery wholesale prices, markups, marginal costs, and production decisions. I employ a production function approach, combined with confidential refinery level data, to jointly estimate markups and marginal costs without relying on standard structural assumptions regarding consumer demand or competition. I find that increases in the RFS credit price increased markups and marginal costs for regulated fuels – gasoline and ultra-low sulfur diesel – and decreased markups for non-regulated fuels in 2013-2014. This implies that the RFS credit price was more than fully passed onto gasoline and ultra-low-sulfur diesel prices during this period. I find that refineries also reallocated production to non-regulated fuels in response to increases in the RFS credit price, leading to $35-$179 million in leaked emissions damages. Finally, I use the pass-through and markup results to estimate the incidence of policy uncertainty. I find that the burden of the RFS credit price is borne nearly 16 times more by gasoline consumers than producers.
2) How do Residential Consumers Respond to Critical Peak Pricing? Experimental Evidence on the Role of Information and Incentives, with Ken Gillingham (Yale) and Praveen Kopalle (Dartmouth)
Abstract: Residential electricity prices do not usually respond to wholesale prices and thus are disconnected from the marginal cost of generation. This study examines a field experiment in Texas that includes both pricing and informational interventions to encourage energy conservation during summer peak load days. Using data at the appliance-minute-level, we estimate a price elasticity of electricity demand of -0.17, and find that over 60 percent of this response can be attributed to air conditioning. Moreover, we find that several informational interventions, including those relying on moral suasion, do not lead to energy conservation. By disentangling the price elasticity at the appliance-level, these results show that behavior changes are limited to a few appliances, highlighting the mechanisms underlying consumer response to pricing.
3) Unexpected Gains from Exogenous Regulation: Oligopolist Profits in the Presence of a Competitive Fringe
Abstract: I derive conditions under which price or quantity emissions regulation can increase profits. The model setup includes imperfectly competitive firms and a competitive fringe. Unlike previous work that depends on the elasticity of demand, I show that the presence of the competitive fringe relaxes the conditions on elasticity resulting in a potential profit increase for a residual monopolist. Additionally, the competitive fringe may also benefit from regulation. If regulators fail to account for imperfect competition, emissions policies can be welfare decreasing. I show that retail price regulation can attenuate the welfare loss associated with misspecified emissions policies in the presence of imperfect competition. The setup, which is the framework often associated with the electricity industry, is relevant to current environmental policy discussions. Both the US Environmental Protection Agency’s Clean Power Plan and California’s AB32 regulate electricity sector emissions.
4) Peer Effects in Dry Landscape Adoption, with Ken Gillingham (Yale) and Bryan Bollinger (Duke)
1) Burkhardt, J., Wiser, R., Darghouth, N., Dong, C. G., & Huneycutt, J. (2015). Exploring the impact of permitting and local regulatory processes on residential solar prices in the United States. Energy Policy, 78, 102-112.
2) The Dollars and Sense of Ballot Propositions: Estimating Willingness to Pay Using Aggregate Voting Data, with Nathan Chan (Colby College): Revise and Resubmit at the Journal of the Association of Environmental and Resource Economists. Current Draft
Abstract: This paper develops a general approach for estimating willingness to pay (WTP) for public goods using referendum voting data, and we demonstrate the approach by applying it to a series of referenda in California spanning a wide array of public goods. We find a range of annual WTP values from $2.21 per person for water quality, flood control, and coastal protection to $38.85 per person for public school funding. Comparing estimated mean and median WTP values provides an upper bound on prices that would still ensure passage of successful propositions. Conversely, this comparison provides an estimate of the hypothetical decrease in prices that would have been necessary to ensure passage of unsuccessful propositions. Our methods estimate the relative effects of prices, income, and ideology on the support for public goods. We show that both ideology and economic costs have significant impacts, which stands in contrast to previous work that contends that voting patterns are driven purely by fiscal costs. Our work is useful on two fronts: we develop a new revealed preference approach for estimating WTP for public goods, and we provide ex-post benefit-cost analysis for policies that occur