Low-powered vs high-powered incentives: Evidence from German electricity networks

Michael Hellwig, Dominik Schober and Luis Cabral

International Journal of Industrial Organization, 2020, vol. 73, issue C

Abstract: We propose a difference-in-differences approach to estimating the impact of incentives on cost reduction in the context of German electricity networks. When subject to a lower-powered regulation mechanism, relatively more efficient operators pile up more costs in the year used to determine future prices. This pattern is consistent with the idea that incentives matter: higher-powered incentives lead to cost reduction. The results are also consistent with an equilibrium where more efficient firms pool with less efficient ones under the threat of ratcheting.

Keywords: Regulation; Ratchet effect; Electricity utilities; Difference-in-differences; Efficiency analysis (search for similar items in EconPapers)
JEL-codes: D24 D82 K23 L51 L94 L98 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:73:y:2020:i:c:s0167718720300096

DOI: 10.1016/j.ijindorg.2020.102587

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