Essays on Energy and Regulatory Compliance

This dissertation contains two essays on the analysis of market imperfections. In the first essay, I empirically test whether in a three-level hierarchy with asymmetries of information, more competition among intermediaries leads to more deception against the principal. In this setting, intermediaries supervise agents by delegation of the principal, and compete among themselves to provide supervision services to the agents. They cannot be perfectly monitored, therefore allowing them to manipulate supervision results in favor of the agents, and potentially leading to less than optimal outcomes for the principal. Using inspection-level data from the vehicular inspection program in Atlanta, I test for the existence of inspection deception (false positives), and whether this incidence is a function of the number of local competitors by station. I estimate the incidence of the most common form of false positives (clean piping) to be 9% of the passing inspections during the sample period. Moreover, the incidence of clean piping -- passing results of a different vehicle fraudulently applied to a failing vehicle -- per station increases by 0.7% with one more competitor within a 0.5 mile radius. These results are consistent with the presence of more competitors exacerbating the perverse incentives introduced by competition under this setting.

In the second essay, we test whether electricity consumption by industrial and commercial customers responds to real-time prices after these firms sign-up for prices linked to the electricity wholesale market price. In principle, time-varying prices (TVP) can mitigate market power in wholesale markets and promote the integration of intermittent generation sources such as wind and solar power. However, little is known about the prevalence of TVP, especially in deregulated retail markets where customers can choose whether to adopt TVP, and how these firms change their consumption after signing up for this type of tariff. We study firm-level data on commercial and industrial customers in Texas, and estimate the magnitude of demand responsiveness using demand equations that consider the restrictions imposed by the microeconomic theory. We find a meaningful level of take-up of TVP ? in some sectors more than one-quarter of customers signed up for TVP. Nevertheless, the estimated price responsiveness of consumption is still small. Estimations by size and by type of industry show that own price elasticities are in most cases below 0.01 in absolute value. In the only cases that own price elasticities reach 0.02 in absolute value, the magnitude of demand response compared to the aggregate demand is negligible.