Experimental Energy Economics

Silvester van Koten

European University Institute, FlorenceCERGE-EI, Prague

Experimental Energy

Economics

Presenting results of Van Koten, S. and Ortmann, A., 2011. “Structural versus Behavioral Remedies in the Deregulation of Electricity Markets: An Experimental Investigation Guided by Theory and Policy Concerns.”

The job of economists

Analyze markets

Design markets

Silvester van Koten Experimental Energy Economics

Design markets (Roth, Econometrica, 2002)

Highly practical advice

Institutional details

Bounded rationality

Silvester van Koten Experimental Energy Economics

Theoretical economics

Engineering approach

Silvester van Koten Experimental Energy Economics

1. Theoretical Physics

2. Bridge model experimentation

3. Bridge

1. Theory 2. Engineering 3. Implementation

Silvester van Koten Experimental Energy Economics

Theoretical Physics Bridge Experimentation Bridge

Theoretical Economics Market ExperimentationExperimental &

Computational Economics

Competitive MarketE.g., Energy Market

Market power in generator markets

Market power in generator markets

Structural measure of divestiture

More competitors

Cournot

More competitors -> more supply & lower prices

Silvester van Koten Experimental Energy Economics

Behavioral measure of forward market

More supply of each competitor

Allaz & Villa (1993)

Forward market -> more supply & lower prices

Remedies

1. Theory

3 Firms

4 Firms

Without Forward Market

M3 M4

With Forward Market

M3F –

43 44

45

Theoretical predictions (following Allaz & Vila, 1993)Silvester van Koten Experimental Energy Economics

Structural measure of divestiture

More competitors

Cournot

More competitors -> more supply & lower prices

Silvester van Koten Experimental Energy Economics

Behavioral measure of forward market

More supply of each competitor

Allaz & Villa (1993)

Forward market -> more supply & lower prices

Remedies

1. Theory

2. “Engineering”

“Engineering”

Economics Experiment

“Engineering”

Economics Experiment

“Engineering”Economics ExperimentThe new state-of-the-art LEE Laboratory (www.vse-lee.cz)

Silvester van Koten Experimental Energy Economics

3035

4045

5055

1 4 8 12 16 20 24Period

M3_mean M3F_meanM4_mean

M3, M3F, M4

Silvester van Koten Experimental Energy Economics

Structural measure effect

(1 more competitor)

Behavioral measure effect

(Forward market) >

Both measures have pro-competitive effects:– Behavioral: Introducing a forward market– Structural: Adding one more competitor

Design focus on BEHAVIORAL measure first– Behavioral measure MORE effective than structural

measure

Silvester van Koten Experimental Energy Economics

Experimental Energy Economics

• Forward market versus competition*

• Abatement decisions under the Emission Trading Scheme in the EU.

• Self-Regulatory Organisations and Governmental Oversight

Silvester van Koten Experimental Energy Economics

Questions?

Silvester van Koten

European University Institute, FlorenceCERGE-EI, Prague

Experimental Energy

Economics

Presenting results of Van Koten, S. and Ortmann, A., 2011. “Structural versus Behavioral Remedies in the Deregulation of Electricity Markets: An Experimental Investigation Guided by Theory and Policy Concerns.”