Uniform Incentives Research Articles

Market Power and Renewables: The Effects of Ownership Transfers

Adding renewable energy sources (RES) to an electricity market has an ambiguous effect on wholesale prices. The merit order effect (MoE) has a downward pressure on prices while, with market power, higher inframarginal rents will tend to increase prices. We quantify the interaction of the two effects in the Ontario electricity market. We identify the market power effect by simulating transfers of RES capacity from the fringe to larger firms: these transfers increase prices by up to 24%. We then add RES capacity and allocate it to players with varying levels of market power. Following a net expansion of RES capacity of 5% relative to total capacity, prices decrease by 30% when new capacity is assigned to the fringe, but only by 7% when assigned to the largest firm. Our findings show that the MoE is largely mitigated by market power, hence the importance of the market structure in the design of uniform incentives for RES adoption.

Organizational Identity and Performance in Compensation Contracts: Theory and Evidence

This study explores the effect of employee organizational identity on developing effective compensation contracts to improve organizational performance. We adopt the economic identity theory to mathematically model and test this model using data from a Japanese listed firm that uses an exogenous, uniform incentive scheme based on a seniority system. Situating low-level sales managers as agents and department managers as principals in the mathematical analysis reveals that when organizations do not set optimal compensation contracts, the expected utility of department managers is not high — even if they have high levels of organizational identity — because utility depends on the magnitude of incentive coefficients. Empirical results show that the coefficient of organizational identity has a significant positive relationship with organizational performance. However, surprisingly, when the incentive coefficient is high, the relationship between organizational identity and performance is negative. These results indicate that organizational identity is a “double-edged sword” in incentive schemes with a seniority system, and managers should tune their targets and incentive schemes more finely to optimize firm performance.

Evaluating the impact of denitrification tariff on energy-related NOx generation in China: Policy effects and regional disparities

Previous studies analyzing energy related nitrous oxides (NOx) focus on the calculation and influencing factors of NOx generation, but lack sufficient analysis of policy impacts. This paper attempts to evaluate a critical financial incentive for motivating NOx removal in China – the denitrification tariff for power plants. We calculate energy-related NOx generation in 30 provinces from 1995 to 2016, and test the impact of the denitrification tariff using an extended STIRPAT (Stochastic Impacts by Regression on Population, Affluence, and Technology) model. We examine policy impacts in the pilot and follower regions with different implementation time, and find significant reduction in NOx generation in both regions. On national average, our model estimates that 1% increase in the denitrification tariff leads to 0.190% decline in energy-related NOx generation, holding other variables constant. The effect size of the tariff is higher in the follower region than in the pilot region, whereas policy effect is lagged for 2 years in the pilot region. We also find socio-economic factors significantly positively correlated with NOx generation. The result suggests that tailored incentives considering regional disparities will work better than a uniform incentive, and a combination of policy instruments in reducing fossil fuel consumption is desired to effectively reduce NOx generation.

Market Power and Renewables: The Effects of Ownership Transfers

The introduction of renewable energy sources (RES) in an electricity market changes the shape of the system’s supply curve. In a perfectly competitive market, this causes a downward pressure on equilibrium prices called the merit order effect (MoE). However, when introducing or transferring RES assets to firms with market power, effects on inframarginal rents are ambiguous and depend on the share of RES capacity in the firms’ portfolios. We quantify this effect empirically in the Ontario electricity market by finding equilibria under different counterfactual scenarios of RES ownership transfers and expansions. First, we identify the effect of market power in isolation by keeping the system’s capacity fixed, but we transfer RES capacity from the fringe (competitive) to firms with market power. These transfers yield increases in prices of up to 24% relative to average wholesale prices. Then, in order to measure the interaction of market power with the MoE, we introduce new RES capacity to the system by giving it to different players with varying levels of market power. We find that, following a net expansion of RES capacity of 5% relative to total capacity, wholesale prices decrease by up to 30% in the case of perfect competition. However, if capacity is assigned to the largest firm the decrease in prices is only 7%. These findings suggest that the MoE can be largely mitigated by market power, hence the key importance of the nature of the owner of new capacity when designing uniform incentives for RES adoption.

Incentive-Based Control of Asynchronous Best-Response Dynamics on Binary Decision Networks

Various populations of interacting decision-making agents can be modeled by asynchronous best-response dynamics or, equivalently, linear threshold dynamics. Building upon recent convergence results in the absence of control, we now consider how such a network can be efficiently driven to a desired equilibrium state by offering payoff incentives or rewards for using a particular strategy, either uniformly or targeted to individuals. We begin by showing that strategy changes are monotone following an increase in payoffs in coordination games, and that the resulting equilibrium is unique. Based on these results, for the case when a uniform incentive is offered to all agents, we show how to compute the optimal incentive using a binary search algorithm. When different incentives can be offered to each agent, we propose a new algorithm to select which agents should be targeted based on maximizing a ratio between the cascading effect of a strategy switch by each agent and the incentive required to cause the agent to switch. Simulations show that this algorithm computes near-optimal targeted incentives for a wide range of networks and payoff distributions in coordination games and can also be effective for anticoordination games.

The impact of a feed-in tariff on wind power development in Germany

We estimate the impact of a feed-in tariff (FIT) on wind power investment and emission reductions in Germany from 1996–2010. We find that a 1 €-cent/kWh increase in the FIT rate would increase additions to capacity by 796 MW on average per year from 1996–2010. In addition, we find that proximity to existing transmission lines became less of a consideration in determining the location of new wind power plants, after a Renewable Energy Law (EEG) provision shifted the cost of transmission system upgrades from wind power developers to grid operators. The lack of a signal on scarcity of transmission capacity may have contributed to a distribution of wind power plants that makes suboptimal use of existing infrastructure, necessitating investment in new transmission corridors. In 2000, the EEG also replaced the uniform feed-in tariff with one linked to wind power potential, such that more windy locations received a lower incentive per unit of output, in order to contain costs and spread investment across the country. We compare the wind-dependent EEG incentive with a counterfactual scenario, in which a uniform incentive is offered, and find that the EEG is slightly more cost-effective, achieving about 4% greater reductions in power sector CO2, SOx, NOx, and PM10 emissions.

A Stackelberg Game Approach Toward Socially-Aware Incentive Mechanisms for Mobile Crowdsensing

Mobile crowdsensing has shown great potential in addressing large-scale data sensing problems by allocating sensing tasks to pervasive mobile users. The mobile users will participate in a crowdsensing platform if they can receive a satisfactory reward. In this paper, to effectively and efficiently recruit a sufficient number of mobile users, i.e., participants, we investigate an optimal incentive mechanism of a crowdsensing service provider. We apply a two-stage Stackelberg game to analyze the participation level of the mobile users and the optimal incentive mechanism of the crowdsensing service provider using backward induction. In order to motivate the participants, the incentive mechanism is designed by taking into account the social network effects from the underlying mobile social domain. We derive the analytical expressions for the discriminatory incentive as well as the uniform incentive mechanisms. To fit into practical scenarios, we further formulate a Bayesian Stackelberg game with incomplete information to analyze the interaction between the crowdsensing service provider and mobile users, where the social structure information, i.e., the social network effects, is uncertain. The existence and uniqueness of the Bayesian Stackelberg equilibrium is analytically validated by identifying the best response strategies of the mobile users. The numerical results corroborate the fact that the network effects significantly stimulate a higher mobile participation level and greater revenue for the crowdsensing service provider. In addition, the social structure information helps the crowdsensing service provider achieve greater revenue gain.

A Uniform Policy Tool, but with Varied Implementations: Explaining Variations of Incentive Policies for New/Renewable Energy in a Korean Case

Background/Objectives: Korea has uniform incentive policies to promote renewable energy development, but these are applied by each local government in different ways. This study addresses which factors make the difference of implementation strength of the incentive policies to promote new/renewable energy development and use. Methods/Statistical Analysis: A survey was conducted with the directors of the new/renewable energy departments of all 227 local governments in Korea. The response rate was 72.7 %, and 92 local governments were employed for the analysis due to missing results. Statistical analysis was executed by the Ordered Logit Model. We diagnosed parallel regression assumptions and cut-off points, and the results showed validity of this method (financial incentives: chi2(32)=37.84 (prob>chi2=0.2199); nonfinancial incentives: chi2(32)=43.31 (prob>chi2=0.0876); cut-off points (prob>chi2=0.000)). Findings: This study shows that interest groups’ influence and new/renewable energy department level of local governments substantially promote both financial and non-financial incentive offer for new/renewable energy. In addition, whereas assemblies’ influence is likely to reduce financial incentive offer, local governments with policies to reduce environmental pollution tend to increase the financial incentive offer. Local governments implementing environmental regulations more stringently and requiring stronger administrative manpower are likely to reduce non-financial incentive offer for new/renewable energy. These finding shows that local governments applying centralized incentive policies are substantially influenced by several critical factors, such as interest groups’ influence and the new/renewable energy department level of local governments, and these factors cause variations in implementing the incentive policies of local governments. Improvements/Applications: These findings can provide significant information and rationale to enhance the effectiveness of new/renewable energy policies,to manage them, and indeed to promote new/renewable energy development and use.

The Impact of a Feed-In Tariff on Wind Power Development in Germany

We estimate the impact of a feed-in tariff for renewable power on wind power investment in Germany at the county level from 1996-2010 controlling for windiness and access to the electricity transmission grid. After the Renewable Energy Law (EEG) was passed in 2000, the feed-in tariff became linked to wind power potential, such that more windy locations received a lower incentive per unit of output. We find that a 1 e-cent/kWh increase in the feed-in tariff rate would increase additions to capacity at the national level by 764MWper year from 1996- 2010 or 1,528 MW per year from 2005-2010. We analyze counterfactual scenarios, in which a uniform incentive is offered instead of the wind-dependent EEG incentive. Significantly more wind power plants are installed along the northern coastal counties in the uniform incentive scenario. We find that while the uniform incentive results in greater total wind power output per installed capacity, the EEG is ultimately more efficient by achieving 1% greater wind power output per euro and 3.7% greater reductions in power sector emissions per euro. In addition, we find a significant response from investors to an EEG provision that shifted the cost of transmission system upgrades from wind power developers to grid operators in 2000. The lack of a signal on scarcity of transmission capacity has likely resulted in a distribution of wind power plants that makes suboptimal use of existing infrastructure, necessitating investment in new transmission corridors.

State Patents

It is an assumption of modern U.S. patent law that states cannot grant patents. Indeed, the Supreme Court has effectively preempted them from doing so. This Article argues that full preemption of state patents may be inefficient because sometimes state patents (exclusive rights granted by state governments for patentable or unpatentable innovations) might be more effective than state tax credits or direct subsidies for promoting investment in spatially localized innovations, such as agricultural techniques or energy production methods that have yet to be successfully commercialized. Building on work by scholars who argue that U.S. patents can be designed to promote commercial risk-taking and market experimentation, the Article argues that state patents could serve this function if they were re-introduced today in a form similar to their historical iteration. First, they have a lower standard of novelty, so that foreign inventions can be imported into the jurisdiction from abroad and given localized protection. Second, they have a higher standard of social utility, meaning the local government can select only those technologies it wishes to be introduced into the jurisdiction to support local goals or industries. Third, they have strict reduction to practice requirements, while information disclosure requirements are limited only to the practical information needed to work the invention. Fourth, they are tailored rather than uniform incentives, with term length and scope based on the level needed to induce commercialization. The Article concludes that the Supreme Court’s current approach to patent preemption is too restrictive. It proposes a revised approach based on direct conflict analysis and a political process theory of judicial review under the dormant Commerce Clause.

Comparing students by a matching analysis – on early school leaving in Dutch cities

In case of regional discretionary on the implementation of policy measures, central governments often consider differences in outcomes as an indication that one policy was more effective than another policy. If uniform incentives are provided to motivate regional policy makers, these incentives can be discouraging when the underlying populations differ. Empirically, this study compares early school leaving between the four largest Dutch cities. It shows that considering regional differences as performance measures can be dangerous if differences in population characteristics are not properly taken into account. Methodologically, this study contrasts the use of a traditional probit model with a more advanced iterative matching procedure.

Fiscal federalism and interjurisdictional externalities: New results and an application to US Air pollution

The economics of fiscal federalism has identified two book-end departures from first-best provision of a public good. Local governments may respond to local conditions, but ignore inter-jurisdictional spillovers. Alternatively, central governments may internalize spillovers, but impose uniform incentives ignoring local heterogeneity. We provide a simple model that demonstrates that the choice of pricing policy also depends crucially on a third factor, the shape of marginal costs of providing the public good. If marginal costs are convex, then marginal abatement cost elasticities will be higher around the local policies. This increases the deadweight loss of those policies relative to the centralized policy, ceteris paribus. If they are concave, then the opposite is true.Using a detailed simulation model of the US electricity sector, we then empirically explore these tradeoffs for US air pollution. We find that US states acting in their own interest lose about 31.5% of the potential first-best benefits, whereas the second-best uniform policy loses only 0.2% of benefits. The centralized policy outperforms the state policy for two reasons. First, inter-state spillovers are simply more important that inter-state heterogeneity in this application. Second, because of the convexity of the marginal cost functions, elasticities are much lower over the range relevant to the centralized policy, dampening the distortions.

Locating collection centers for incentive-dependent returns under a pick-up policy with capacitated vehicles

We address the problem of locating collection centers of a company that aims to collect used products from product holders. The remaining value in the used products that can be captured by recovery operations is the company’s motivation for the collection operation. We assume that a pick-up strategy is in place according to which vehicles with limited capacity are dispatched from the collection centers to the locations of product holders to transport the returns. Each product holder has an inherent willingness to return, and makes the decision on the basis of the financial incentive offered by the company. The incentive depends on the condition of the returned item referred to as return type. We formulate a mixed-integer nonlinear facility location-allocation model to find both the optimal locations of a predetermined number of collection centers and the optimal incentive values for different return types. Since the problem is NP-hard, we propose a heuristic method to solve medium and large-size instances. The main loop of the method is based on a tabu search method performed in the space of collection center locations. For each location set prescribed by tabu search, Nelder–Mead simplex search is called to obtain the best incentives and the corresponding net profit. We experiment with different quality profiles when there are two and three return types, and observe the effect of the uniform incentive policy (UIP) in which the same incentive is offered to product holders regardless of the quality of their returns. We conclude that the UIP is inferior to the quality-dependent incentive policy resulting in a higher profit loss when the proportion of lowest quality returns is relatively high.