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Experimental Economics is for Market Design what Engineering is for Bridge Building. Presenting results of Van koten & Ortmann (2011, http://goo.gl/Awv68)
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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.”
