Gomez-Lobo, Andres; (1998) Three essays in applied regulation. Doctoral thesis (Ph.D), UCL (University College London).

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Abstract

In the last fifteen years, theoretical economists have reformulated the theory of regulation using the tools of informational economics. Although theoretical advances in the field have been numerous, empirical work on the subject has been sparse. The main objective of this thesis is to apply empirical techniques to different topics in the area of regulation. In agreement with the new theory, in each of the essays special emphasis is placed on informational issues. The first essay concerns demand side aspects of regulation. Recent regulatory reforms in the United Kingdom energy markets will result in important changes in domestic energy tariffs. A demand system for the United Kingdom is estimated using data from the Family Expenditure Survey. The estimation strategy takes into account problems raised by the non-linear nature of energy prices and unobserved consumer heterogeneity. The results are subsequently used to calculate the welfare consequences of changes in domestic gas tariffs. The results show that tariff rebalancing, sparked by the introduction of competition for the supply of gas, will most probably pose distributional conflicts. The results are not only useful for the design of welfare policy but also for the discussions surrounding regulatory reform. The next two essays deal with the supply side of regulation. The first develops a structural econometric method for estimating the parameters of a cost function under conditions of asymmetric information. The method is applied to the Norwegian Bus industry. Using the estimated model, the effects of changes in the regulatory environment can be analysed. In particular, the effects of introducing an optimal second-best contract or several types of auctions are examined. To the best of our knowledge, this is the first time in the applied regulation literature that an optimal second best contract has been characterised using information recovered exclusively by econometric methods. The final essay deals with auctions. It examines the tendering of refuse collection contracts by local authorities in England. A structural econometric model is estimated to recover firms' underlying cost distribution. The results are used to answer several questions regarding these auctions, in particular whether there is a bias favouring one type of firm in the tendering process. This study adds one more example to the emerging econometrics of auctions literature.

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