Price Floor Research Articles

Electricity contract design and wholesale market outcomes in Australia's National Electricity Market

AbstractThe emergence of variable renewable energy (VRE) technologies has created a range of different energy contracting techniques. Within Australia's National Electricity Market (NEM), Run‐of‐Plant (RoP) Power Purchase Agreements (PPAs) became the most common form of contract with purchasers of wind and solar energy agreeing to pay a fixed price for energy irrespective of when it is produced and, therefore, its actual value to the market. In November 2023, the Commonwealth Government adopted a 32 GW RoP PPA Contract‐for‐Difference (CfD) underwriting policy that aims to effectively shield the generator from market price risk. This article discusses different contract structures and their impact on participant behaviour during periods of material oversupply and negative prices. We find that embedded solar PV exports into the distribution network, which are not required to dynamically participate in the wholesale market, have increased wholesale energy supply, enabling profit maximising vertically integrated renewable firms to drive prices lower in a manner that partially strands the output of RoP PPA CfD generators with a $0/MWh price floor. A key conclusion from our analysis is that requiring embedded solar PV to effectively participate in the wholesale market appears to be a pre‐condition for the efficacy of government‐initiated RoP PPA CfDs.

Ikhtikar, Islamic Business Ethics, Price floor, Price ceiling, role of government.

Ikhtikar, Islamic Business Ethics, Price floor, Price ceiling, role of government.

Is parity pricing enough? A critical analysis of parity pricing and the case for additional strategies

Producers in the U.S., particularly small-scale farmers and specialty crop growers, are unable to maintain their livelihoods with farming alone. This issue is convoluted by low farm gate prices stemming from the unequal distribution of market share and political support within the U.S. food supply chain. As a result, many farm activists and scholars have recommended a revitalization of parity pricing within U.S. policy. Parity pricing once served to set price floors considered to represent “fair” farm gate prices determined by the farm gate price and purchasing power of commodities during the parity period of 1910–1914. In this paper, we evaluate whether parity did exist during the set period of 1910–1914, showing farm incomes and non-farm incomes were not significantly different from one another during the parity period. We then explore the extent to which parity prices correspond to farm-gate prices, transfer terminal prices, and retail prices for a select group of twelve specialty crops. We show that farm gate prices are significantly lower than parity prices, do not necessarily translate into low prices for consumers, and do not consistently correlate with production costs. Lastly, we display the temporal correspondence between the end of parity pricing and declines in farm income. Our analysis contributes important evidence of the inequalities within production, payment, and pricing structures of specialty crops in the U.S. As such, we provide a critique of parity pricing arguing that parity pricing alone will not be sufficient to solve the complex and deeply rooted issues underpinning low farm gate prices and injustices within the U.S. food system. We conclude with a discussion of the impacts of low farm gate prices and areas for policy interventions.

How can agent-based modelling provide new insights into the impact of minimum unit pricing in Scotland?

In recent years we have gained insight into the impact of minimum unit pricing (MUP)-a legal floor price below which a given volume of alcohol cannot be sold-on population-level reductions in alcohol sales, consumption and harm. However, several questions remain unanswered including how individual-level purchasing changes impact the local economy (e.g., balance between on-licence and off-licence outlets), lead to long-term population-level trends (e.g., youth drinking) and social harms (e.g., violence). Agent-based modelling captures heterogeneity, emergence, feedback loops and adaptive and dynamic features, which provides an opportunity to understand the nuanced effects of MUP. Agent-based models (ABM) simulate heterogeneous agents (e.g., individuals, organisations) often situated in space and time that interact with other agents and/or with their environment, allowing us to identify the mechanisms underlying social phenomena. ABMs are particularly useful for theory development, and testing and simulating the impacts of policies and interventions. We illustrate how ABMs could be applied to generate novel insights and provide best estimates of social network effects, and changes in purchasing behaviour and social harms, due to the implementation of MUP. ABMs like other modelling approaches can simulate alternative implementations of MUP (e.g., policy intensity [£0.50, £0.60] or spatial scales [local, national]) but can also provide an understanding of the potential impact of MUP on different population groups (e.g., alcohol exposure of young people who are not yet drinking). Using ABMs to understand the impact of MUP would provide new insights to complement those from traditional epidemiological and other modelling methods.

Impact of New York City Cigarette Floor Price Policy on Reducing Smoking Disparities.

In 2017, New York City (NYC) passed a minimum floor price law (MFPL) to raise the minimum price of a pack of cigarettes to $13.00. Evaluation of the MFPL in NYC is limited and has yet to examine its potential as a proequity policy. Data (n = 20 241; prepolicy n = 15 037, postpolicy n = 5204) were obtained from the New York State Adult Tobacco Survey, a quarterly repeated cross-sectional survey. Using the Difference-in-Differences approach, we compared changes in reported cigarette prices, cigarette consumption, and smoking status among NYC residents before and after policy implementation to changes in the same outcomes among residents in the rest of the state (ROS) over the same period. For some smokers, cigarette price increased in NYC for the postpolicy period; moreover, prices increased more in NYC than in ROS. NYC smokers who reported higher income, more education, or White or "Other" race, reported a bigger price increase than their ROS counterparts. Cigarette consumption decreased more in the postpolicy period for people in the ROS, in general and among certain groups. Everyday smoking status decreased similarly in both NYC and ROS, whereas someday smoking status decreased primarily in the ROS during the analysis period. Cigarette prices in NYC increased after the 2017 MFPL; these increases were greater than those occurring elsewhere in the state, suggesting the policy might be a factor in the change. However, the increases were concentrated among relatively higher-priced purchases, and groups with lower smoking prevalence. Changes in smoking status and cigarette consumption did not correspond to study hypotheses. This study provides an empirical analysis of a real-world policy in tobacco control. It examines the potential of the MFPL in NYC as a proequity policy. Findings extend the current MFPL literature and suggest that they may be able to raise cigarette prices for some purchases, but also may have a limited impact on smoking behaviors.

Evaluating the impact of minimum unit pricing (MUP) on alcohol sales after 3years of implementation in Scotland: A controlled interrupted time-series study.

On 1May 2018, Scotland introduced minimum unit pricing (MUP), a strength-based floor price below which alcohol cannot be sold, throughout all alcoholic beverages. The legislation necessitates an evaluation of its impact across a range of outcomes that will inform whether MUP will continue beyond its sixth year. We measured the impact of MUP on per-adult alcohol sales (as a proxy for consumption) after 3 years of implementation. Controlled interrupted time-series regression was used to assess the impact of MUP on alcohol sales in Scotland after 3 years of implementation, with England and Wales (EW) being the control group. In adjusted analyses, we included household disposable income, on-trade alcohol sales (in off-trade analyses) and substitution between drink categories (in drink category analyses) as covariates. Weekly data were assessed on the volume of pure alcohol sold in Scotland and EW between January 2013 and May 2021, expressed as litres of pure alcohol per adult. The impact of MUP on total (on- and off-trade combined), off-trade and on-trade alcohol sales was assessed separately. The introduction of MUP in Scotland was associated with a 3.0% (95% confidence interval = 1.8-4.2%) net reduction in total alcohol sales per adult after adjustment for the best available geographical control, disposable income and substitution. This reflects a 1.1% fall in Scotland in contrast to a 2.4% increase in EW. The reduction in total alcohol sales in Scotland was driven by reduced sales of beer, spirits, cider and perry. The reduction in total sales was due to reductions in sales of alcohol through the off-trade. There was no evidence of any change in on-trade alcohol sales. Minimum unit pricing has been effective in reducing population-level alcohol sales in Scotland in the 3 years since implementation.

Village Fairness Norms and Land-Rental Markets

Abstract This paper documents the role of village fairness norms in land markets. A strong and robust relationship is established between experimentally elicited village-level fairness norms and land-rental rates across 250 Malawian villages. Stronger fairness norms correlate with a tighter range in village rental rates. The study suggests that the fairness norms for tenants appear to be more important, constraining the land-rental price range by a price ceiling rather than a price floor. The results further indicate that rented-in fields are of lower agronomic quality than owner-cultivated fields, but do not find any statistically significant relationship between the fairness norms and land-rental activity in the village.

Optimal Goods Production Subject to Emissions Trading with Price Floor

In this paper, we propose a novel approach to study the production of consumption goods within a price floor carbon emission trading scheme. A stochastic Stackelberg game is set up between the environment authority (Player 1), and the manufacturer/producer (Player 2). In such a hybrid emission trading scheme, the authority sets an emissions target and producers will choose to participate in carbon trading on this basis, subject to a stochastic demand with information delayed. When the stochastic demand is determined by the market sale price and the scale of carbon emission reduction, we apply the maximum principle to obtain both the optimal production and market price. We show when the demand is determined by both the market sales price and carbon emission reduction, manufacturers are persuaded to set the market sales price first (ex ante incentive) and then proceed to a carbon trading scheme, thus providing a backward-looking advantage to manufacturers. Consequently, the manufacturer and the environmental authority can find a subgame-perfect Nash equilibrium via backward induction.

Recovering farming supply chains from animal epidemics via government subsidies

In recent years, animal epidemics – such as African swine fever and bird flu – break out more frequently in both developed and developing economies, causing serious economic losses and animal product shortages. To restore animal product supply, many governments offer two agricultural subsidies to farms: (i) the culling compensating subsidy (CCS), which guarantees a floor price for culled animals, and (ii) the scaled construction subsidy (SCS), which supports large-scale farms to enhance their production capacities. We develop a three-stage Stackelberg game framework to capture the strategic interactions among the government, large- and small-scale farms. In particular, the two types of farms differ in their epidemic prevention and control capabilities and must operate under yield uncertainty. We study two cases regarding whether the government requires a minimum BS for the SCS. In each case, we analyze the equilibrium decisions of the profit-seeking farms and characterize the structure of the government’s optimal subsidy programs with an earmarked budget to maximize social welfare. Moreover, we identify the conditions under which the government should adopt the “SCS only strategy”, “CCS only strategy”, or offer the two subsidies simultaneously. Furthermore, we examine the effectiveness of the subsidy programs in terms of consumer surplus, farms payoffs, and social welfare. We show that in both cases, these programs can make the three stakeholders achieve a win–win–win situation by prioritizing a reasonable CCS according to the subsidy budget. We leverage our analyses to offer insights that can help generate policy recommendations for stakeholders in countries suffering from animal epidemics.

Panics and prices

Rumors of a shortage may create higher-order uncertainty and cause panic buying even when there is no real shortage and most consumers are aware of this fact. We study the role of prices in alleviating, or even preventing, panic buying caused by such rumors. Under some circumstances, flexible prices fail to do so and panic buying is the unique equilibrium outcome. In our model consumers do not know their future tastes perfectly and panic buying reduces welfare because consumers now buy with only imperfect information about tastes. In these circumstances, a minimum support price—a price floor—prevents panic buying and leads to higher consumer surplus. Producer surplus may be higher as well.

Alcohol availability and affordability in three constituent entities of the Russian Federation

Aim. To analyze availability and affordability of alcoholic beverages in Russian cities.Material and methods. We assessed the actual state of urban infrastructure in the Arkhangelsk, Tver and Sverdlovsk regions. Data were collected in three districts of Arkhangelsk, three districts of Tver, three districts of Yekaterinburg and Revda, where participants of the Epidemiology of Cardiovascular Diseases and their Risk Factors in Regions of Russian Federation-3 (ESSE-RF3) study (2021) lived. The study objects were elements of the city infrastructure where alcoholic beverages were sold. To assess the infrastructure, special software was developed to collect and analyze the necessary data using Open Street Maps. Data were collected from January to March 2022.Results. In total, 1180 alcohol-selling outlets were identified in the study areas: in Arkhangelsk — 450, in Yekaterinburg and Revda — 444, and in Tver — 286. Mainly alcoholic beverages in Sverdlovsk and Tver regions can be purchased in the alcohol section of a grocery store (n=260, 58,6% and n=185, 41,4%, respectively), and in the Arkhangelsk region — in a specialized liquor stores (n=263, 58,4%). The median number of alcohol stores located within a radius of 1000 m from the place of residence of the ESSE-RF3 participant was 33, and within a radius of 400 meters — 8. In Arkhangelsk, the alcohol was sold in a grocery store located in the same building as the college branch. In the Sverdlovsk region, the nearest alcohol store was located at a distance of 50 m from the kindergarten, in the Tver region — 44 m from the college. A 0,5 liter bottle of vodka was sold below the price floor in 55,1% of specialized liquor stores in the Sverdlovsk region and in 66,8% of such liquor stores in the Tver region.Conclusion. As a result of the study, availability and affordability of alcoholic beverages in Arkhangelsk, Tver, Yekaterinburg and Revda was assessed. The findings reflect the high availability of alcohol and indicate the need for interventions at both the national and local government levels. The used method of collecting and analyzing data demonstrated sufficient research effectiveness and can be recommended for wider use.

Characteristics of price related fluctuations in non-fungible token (NFT) market.

A non-fungible token (NFT) market is a new trading invention based on the blockchain technology, which parallels the cryptocurrency market. In the present work, we study capitalization, floor price, the number of transactions, the inter-transaction times, and the transaction volume value of a few selected popular token collections. The results show that the fluctuations of all these quantities are characterized by heavy-tailed probability distribution functions, in most cases well described by the stretched exponentials, with a trace of power-law scaling at times, long-range memory, persistence, and in several cases even the fractal organization of fluctuations, mostly restricted to the larger fluctuations, however. We conclude that the NFT market-even though young and governed by somewhat different mechanisms of trading-shares several statistical properties with the regular financial markets. However, some differences are visible in the specific quantitative indicators.

Estimating the Effects of Hypothetical Alcohol Minimum Unit Pricing Policies on Alcohol Use and Deaths: A State Example.

Alcohol minimum unit pricing (MUP) policies establish a floor price beneath which alcohol cannot be sold. The potential effectiveness of MUP policies for reducing alcohol-attributable deaths in the United States has not been quantitatively assessed. Therefore, this study estimated the effects of two hypothetical distilled spirits MUP policies on alcohol sales, consumption, and alcohol-attributable deaths in one state. The International Model of Alcohol Harms and Policies tool was used to estimate the effects of two hypothetical MUP per standard drink policies (40-cent and 45-cent) pertaining to distilled spirits products at off-premises alcohol outlets in Michigan during 2020. Prevalence estimates on drinking patterns among Michigan adults were calculated by sex and age group. Prices per standard drink and sales of 9,747 spirits products were analyzed using National Alcohol Beverage Control Association data. Analyses accounted for other alcoholic beverage type sales using cross-price elasticities. Increasing the MUP of the 3.5% of spirits with the lowest prices per standard drink to 40 cents could reduce total alcohol per capita consumption in Michigan by 2.6% and prevent 232 (5.3%) alcohol-attributable deaths annually. A 45-cent MUP would affect 8.0% of the spirits and reduce total alcohol per capita consumption by 3.9%, preventing 354 (8.1%) deaths. Modestly increasing the prices of the lowest-priced spirits with an MUP policy in a single state could save hundreds of lives annually. This suggests that alcohol MUP policies could be an effective strategy for improving public health in the United States, consistent with the World Health Organization's recommendation.

Status of Ginger (Gingiber officinale), Large Cardamom (Amomum subulatum) and Tea (Camellia sinensis) In Koshi Province, Nepal

The study was conducted in Koshi Province in Nepal to review the status of ginger, large cardamom and tea through trend analysis and Strengths, Weakness, Opportunities and Threats (SWOT) analysis techniques. The area contribution of ginger in Koshi Province to the nation was found 34.32%, where the contribution on national production was found 36.61%. Productivity of ginger was found in the increasing trend until 2006/07, slightly decreased in 2007/08 and 2008/09, lowered in 2014/15 A.D. The area contribution of Large Cardamom in Koshi Province to the nation was found 90.9%, where the contribution on national production was found 90.8%. Productivity of Large cardamom was in the increasing trend until 2008/09, slightly decreased in 2009/10 and 2010/11, lowered in 2014/15 A.D. The area contribution of Tea in Koshi Province to the nation was found 90.26%, where the contribution on national production was found 96.73%. In 2003/04 productivity of Tea was in the increasing trend until 2013/14, slightly decreased for five consecutive years (2014/15 to 2018/19), lowered in 2016/17 A.D. All the parameters of production status (area, production, and productivity) of these commodities were found increasing in the national context. Results from study clearly revealed that, collection and auction market point establishment, fixation of minimum ceiling/ floor price, value chain alliance and financing strategy and plan development, effective insurance scheme and access to loan mechanism, post-harvest handling practices at the farm level need to be developed to increase the area, production and productivity of these high value commodities in Koshi Province of Nepal which have great prospects and significance in the global markets.

Risiko Produksi Dan Harga Pada Usahatani Rumput Laut Di Kabupaten Takalar Provinsi Sulawesi Selatan

Seaweed is an export product of aquaculture commodities that have high economic value. One of the areas with high seaweed production in Indonesia is Takalar Regency, South Sulawesi Province. The challenges faced in seaweed farming in South Sulawesi are productivity and price fluctuations. This indicates that there is a risk in cultivated seaweed farming. This study aimed to analyze production risk factors, price risk levels, and risk management for seaweed farming in Takalar Regency, South Sulawesi Province. This study uses primary data derived from 100 respondents who were selected randomly. Analysis of production risk factors using the Just and Pope models with the Cobb-Douglas production function and the level of price risk is carried out by measuring the coefficient of variation and the price floor. Meanwhile, risk management consists of preventive, mitigation, and risk-coping strategies. The results showed that the production risk factors that had a significant effect was labor and harvesting age and had the characteristic of inducing risk factors. The price risk farmers face in Takalar Regency is indicated by the coefficient variation value of 0,279, so the risk level faced is 27,9 percent per kg. Risk management is a preventive strategy by maximizing farming activities, and the quality of the inputs used before risks occur in production and prices.

Using a price floor on carbon allowances to achieve emission reductions under uncertainty

We build a real options investment model for carbon-allowance trading markets with a price-floor mechanism. A power plant faces a choice between undertaking an irreversible investment in carbon emission reduction or holding the option to invest later. The government encourages firms to invest immediately by guaranteeing a minimum value of the allowances. We use the Least Squares Monte Carlo method to find the value of the option and derive the firm’s threshold condition of whether to invest or to wait. The model allows us to compare the government’s costs of alternative policies for encouraging the investment. Using the newly established Chinese carbon emission trading scheme as an example to calibrate the model, simulations show that the expected cost to the government of the price-floor policy is lower compared with using a lump-sum subsidy or a preferential tax-rate policy designed to achieve the same level of reduction in emissions.

Investigating the Distributional Effect of the UK Carbon Price Floor

This paper empirically investigates the distributional effects of the UK carbon price floor (CPF) on households’ electricity expenditure. I employ the difference-in-differences model to analyse the impact of the carbon price floor on vertical inequality. The main result finds that households in the poorest quintile are most impacted by the electricity price increase. I further explore the heterogenous effect on households within the bottom quintile by considering various household characteristics. This paper contributes to the existing literature on carbon pricing policies, in particular their impact on inequality both across income groups and within households in the poorest quintile.

Impact of carbon price on Indonesia’s power sector up to 2050

This study uses TIMES model to assess Indonesia’s power sector’s carbon price impact from 2020 to 2050 and the price needed by 2030 to meet the Paris Agreement NDC target. Four scenarios are used to model the impact of carbon price up to 2050: no carbon price, Indonesia’s current price of USD 2.02/tCO2e, ICPF middle- and high-income countries, USD 50/tCO2e and USD 75/tCO2e. Four price scenarios—10, 25, 35, and 150 USD/tCO2e —are added to better understand the carbon price’s effects. As carbon prices rise, installed capacity and power generation will shift to lower-carbon technology. Ultracritical coal, gas-fired, solar, geothermal, and hydropower plants will replace subcritical coal. Investment, fixed, and variable costs would exceed BaU with a higher carbon price. 2.02 to 25 USD/tCO2e can start the coal-to-gas switch but not significantly change the generation profile. The generation will change significantly above 35 USD/tCO2e. Carbon emissions peak lower with rising carbon prices. USD 25 carbon price reduces emissions significantly; a carbon price below that is costly and ineffective. Indonesian Law No. 16 of 2016 ratified the Paris Agreement NDC, committing Indonesia to reduce greenhouse gas emissions by 29% by 2030 or 41% with international assistance. Energy sector emissions need to decrease by 11% for a 29 percent reduction and 14% for a 41 percent reduction. A 29% reduction requires USD 39.65/tCO2e carbon price, while a 41% reduction requires USD 43.78/tCO2e. These prices are still within the reasonable ICPF price limit for Indonesia to approach the middle-income country price floor.

Anchoring and Adjustment Heuristic in behavioral finance

As a result of changing and evolving times, there is a growing realization that dogmatic economic theories cannot meet the practical needs of market analysis. Under such circumstances, behavioral economics came into being. This paper briefly introduces the origins of behavioral finance, highlighting the role of anchoring and adjustment effects, two psychological heuristic bias in the financial market, and analyzing the pros and cons and countermeasures. From the Nobel Prize of Richard Thaler in 2017, people began to realize the importance of behavioral finance and separating it with normal economic. To understand the way to introduce social psychology phenomenon to economic, we start from explaining anchoring bias on customers and then point out how people use adjustment behavior to correct it and the importance of this behavior. The explain of concept is followed with four familiar and detailed examples of the anchoring and adjustment heuristic in behavioral finance. The examples are all about how to use anchoring and adjustment strategy. First, we will talk about product display and marketing using this strategy. The brands set up an expensive and luxury product to give customers a high prediction of the price of the product they will actually buy. When they see the actual price of the product they are going to buy, it would be much lower that there expect. As a result, they would regard themselves as picking up a bargain and purchase it without hesitation. Similarly, in a court of law, judges are influenced by juries, proving that the anchoring effect does not change depending on the amount of knowledge base (non-experts can influence experts). Also, the anchoring effect can be applied to games. People can judge the psychological price floor of their opponents by first offer thus gaining higher returns. The emergence and popularity of the interdisciplinary discipline of behavioral economics also reflects the need for interdisciplinary connections and innovation.

The effects of seemingly nonbinding price floors: An experimental analysis

Price floors are common policies in markets for storable goods such as commodities, bankable emissions permits, and currencies. Hard price floors are implemented as unlimited government buybacks and prevent the price from falling below the floor; soft floors, whether implemented as limited buybacks or as reserve prices in emission permit auctions, allow the market price to fall below the floor. We specify and then test in the laboratory a two-period model with the same properties as our infinite-horizon model, Salant et al. (2022). Theory predicts that asset prices will respond to price floors even in a set of circumstances where the floor seems nonbinding. Most of our experimental findings are consistent with theoretical predictions: a seemingly nonbinding floor can cause the price and carryover to jump up, the jump is higher with a hard floor than a soft one, and when the floor is so low that the theory predicts no effect, none is observed. In contrast to theoretical predictions, however, the soft floor fails to increase the carryover and market price in our experiment.