Energy and Environmental Economics

Regression analysis suggests that zonal averages of locational marginal prices under the nodal market are about 2% lower than the balancing energy prices that would occur under the previous zonal market structure in ERCOT. The estimates for the nodal market price effects are found after controlling for such factors as natural gas prices, total system load levels, non-dispatchable generation levels, the treatment of local congestion costs, and the treatment of the revenues received by the market from the auctioning of transmission rights. Our finding is limited to periods which are not characterized by price spikes in the wholesale market.

This article surveys the framework that economics brings to environmental policy and, in particular, the use of market incentives in relation to conventional approaches to regulating environmental quality. The article is organized as follows. Section 2 defines market failure more precisely in the context of environmental problems. Section 3 considers what economic theory has to say about solutions to market failure in the environmental realm. Section 4 compares and contrasts market-based environmental policies with more traditional, prescriptive approaches. Section 5 offers a closer focus on market-based policy instruments themselves; it compares and contrasts the two most common approaches, taxes and tradable permits. Section 6 summarizes the experience with selected market-based environmental policies in practice. Conclusions and possible areas for future research are offered in Section 7.

We estimate the price elasticity of water demand with household-level data, structurally modeling the piecewise-linear budget constraints imposed by increasing block pricing. We develop a mathematical expression for the unconditional price elasticity of demand under increasing block prices and compare conditional and unconditional elasticities analytically and empirically. We test the hypothesis that price elasticity may depend on price structure, beyond technical differences in elasticity concepts. Due to the possibility of endogenous utility price structure choice, observed differences in elasticity across price structures may be due either to a behavioral response to price structure, or to underlying heterogeneity among water utility service areas.

Information disclosure regulations are increasingly common, but their effects on the behavior of regulated firms are unclear. The 1996 Amendments to the Safe Drinking Water Act mandated that community drinking water suppliers issue to customers annual consumer confidence reports (CCRs), containing information on violations of drinking water regulations and on observed contaminant levels. We examine the impact of mandatory information provision on drinking water violations by 517 community water systems in the Commonwealth of Massachusetts from 1990 to 2003. Results suggest that larger utilities required to mail CCRs directly to customers reduced total violations by between 30% and 44% as a result of this policy, and reduced the more severe health violations by 40

Increasing-block prices are common in markets for water, cellular phone service, and retail electricity. This study estimates demand models under block prices and conducts a Monte Carlo experiment to test the small-sample bias of structural and instrumental variables (IV) estimators. We estimate the price and income elasticity of water demand under increasing-block prices using a structural discrete/continuous choice (DCC) model, as well as random effects and IV. Elasticity estimates are sensitive to the modeling framework. The Monte Carlo experiment suggests that IV and DCC models estimate both price and

income elasticity with bias, with no clear best choice among estimators.