Agricultural & Resource Economics Theses and Dissertations
Permanent URI for this collectionhttp://hdl.handle.net/1903/2739
Browse
3 results
Search Results
Item Internalizing Production Externalities: A Structural Estimation of Real Options in the Upstream Oil and Gas Industry(2009) Muehlenbachs, Lucija; Nerlove, Marc; Rust, John; Agricultural and Resource Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)There are hundreds of thousands of crude oil and natural gas wells across North America that are currently not producing oil or gas. Many of these wells have not been permanently decommissioned to meet environmental standards for permanent closure, but are in an inactive state that enables them to be more easily reactivated. Some of these wells have been in this inactive state for more than sixty years which begs the question of whether they will ever contribute to our energy supply, or whether they are being left inactive because the environmental remediation costs are prohibitively high. I estimate a structural model of optimal well operations over time and under uncertainty to determine what conditions or policies might push any of the inactive wells out of the hysteresis in which they reside. The model is further used to forecast production from existing wells and recoverable reserves from existing pools. The estimation uses data on production decisions from 84 thousand conventional oil and gas wells and estimates of the remaining reserves of 47 thousand pools. As the producer's decision depends on their subjective belief for how prices and recoverable reserves change over time, I also estimate the probability of changes in prices and recovery technology. I model increases and decreases in the estimated recoverable reserves to depend on price, and predict that natural gas reserves are more responsive to changes in price than conventional oil reserves. Under high prices there is potential for large increases in gas reserves, however this is not the case for oil reserves when the oil price is high. And likewise, under low prices, gas reserves decrease more than oil reserves. The dynamic programming model predicts that with only a drastic, arguably implausible, increase in prices and recovery rates will there be a significant increase in the number of inactive wells that are reactivated. If ideal conditions are not enough to induce well reactivation then this implies that typically wells are left inactive not because of the option to reactivate, but rather because the cost of environmental cleanup is too high. Should there be externalities from idling the wells (such as continued contamination of groundwater) that are not accounted for in the decision, then this behavior may not be socially optimal. The model predicts that a Pigouvian tax on inactive wells would have the added benefit of inciting the reactivation of oil and gas wells, however in the case of oil, a tax would incite more wells to be decommissioned than reactivated.Item SERVICE QUALITY AND ASYMMETRIC INFORMATION IN THE REGULATION OF MONOPOLIES: THE CHILEAN ELECTRICITY DISTRIBUTION INDUSTRY(2008-01-03) Melo, Oscar Alfredo; Just, Richard E; Agricultural and Resource Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This study is an enquiry about the role that service quality, asymmetric information, scope of regulation and regulator's preferences play in the regulation of monopolies, with an application to the case of the Chilean electricity distribution industry. In Chapter 1, I present the problem of regulating a monopolist and introduce the special conditions that the electricity sector has. Later I discuss the main characteristics of the electricity system that operates in Chile. The literature on regulation is reviewed in Chapter 2. A special emphasis is given to the problems of quality and information, and the lack of its proper joint treatment. In Chapter 3, I develop four theoretical models of regulation that explicitly consider the regulation of price and quality versus price-only regulation, and a symmetric versus asymmetric information structure where only the regulator knows its true costs. In these models, I also consider the effect of a regulator that may have a preference between consumers and the regulated monopolistic firms. I conclude that with symmetric information and independent of the scope of regulation, having a regulator that prefers consumers or producers does not affect the efficiency of the outcome. I also show that the regulator's inability to set quality, thus regulating only price, leads to an inefficient outcome, away from the first best solution that can be achieved by regulating both price and quality, even with asymmetric information, as long as the regulator does not have a "biased" preference for consumers or the monopolistic producers. If the regulator has a "bias," then the equilibrium will be inefficient with asymmetric information. But the effect on equilibrium price and quality depends on the direction of the effect of quality on the marginal effect of price in demand. More importantly, no closed-form solution can be derived unless drastic simplifications are made. To further investigate the outcome of the models, I use numerical simulation in Chapter 4, assuming flexible functional forms and alternative sets of parameters that represent the scenarios of interest. The results show that when the regulator is biased toward consumers (producers), symmetric information models yield higher (lower) quality except for the most efficient firm. Chapter 5 uses data from the electricity sector in Chile and estimates the price and quality elasticity of demand and finds a positive effect of quality on the price elasticity of demand.Item Methodology and Estimation of the Welfare Impact of Energy Reforms on Households in Azerbaijan(2006-06-07) Klytchnikova, Irina; Just, Richard; Agricultural and Resource Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)This dissertation develops a new approach that enables policy-makers to analyze welfare gains from improvements in the quality of infrastructure services in developing countries where data are limited and supply is subject to interruptions. With the tight budgetary constraints that usually exist, it is important to be able to prioritize public sector investments on the basis of expected benefits. However, policy analysts are rarely able to measure the benefits of improving the quality of infrastructure services, even though they may yield large welfare benefits. The most frequently cited reason for failures to carry out such welfare analysis is the scarcity of data on service quality. The main contribution of this dissertation is a new model of welfare evaluation of changes in the quality of infrastructure services. This model is estimated using the existing data from household energy surveys or data from the energy sections of multi-purpose household surveys. Potential applications of this model range from ex-ante reform evaluation to ex-post monitoring of policy outcomes, which makes this approach a useful contribution to policy analysis and to the literature on welfare evaluation of quality changes in infrastructure. An application of the proposed model in the former Soviet Republic of Azerbaijan demonstrates how this approach can be used in welfare assessment of energy sector reforms. The planned reforms in Azerbaijan include a set of measures that will result in a significant improvement in supply reliability, accompanied by a significant increase in the prices of energy services so that they reach the cost recovery level. Currently, households in rural areas receive electricity and gas for only a few hours a day because of a severe deterioration of the energy infrastructure following the collapse of the Soviet Union. The reforms that have recently been initiated will have far-reaching poverty and distributional consequences for the country as they result in an improvement in supply reliability and an increase in energy prices. The new model of intermittent supply developed in this dissertation is based on the household production function approach and draws on previous research in the energy reliability literature. Since modern energy sources (network gas and electricity) in Azerbaijan are cleaner and cheaper than the traditional fuels (fuel wood, etc.), households choose modern fuels whenever they are available. During outages, they rely on traditional fuels. Theoretical welfare measures are derived from a system of fuel demands that takes into account the intermittent availability of energy sources. The model is estimated with the data from the Azerbaijan Household Energy Survey, implemented by the World Bank in December 2003/January 2004. This survey includes an innovative contingent behavior module in which the respondents were asked about their energy consumption patterns in specified reform scenarios. Estimation results strongly indicate that households in the areas with poor supply quality have a high willingness to pay for reliability improvements. However, a relatively small group of households may incur substantial welfare losses from an electricity price increase even when it is combined with a partial reliability improvement. Unlike an earlier assessment of the same reforms in Azerbaijan, analysis in this dissertation clearly shows that targeted investments in improving service reliability may be the best way to mitigate adverse welfare consequences of electricity price increases. Hence, policymakers should focus their attention on ensuring that quality improvements are a central component of power sector reforms. Survey evidence also shows that, although households may incur sizable welfare losses from indoor air pollution when they rely on traditional fuels, they do not recognize indoor air pollution as a factor contributing to the high incidence of respiratory illness among fuel wood users. Therefore, benefits may be greater if policy interventions that improve the reliability of modern energy sources are combined with an information campaign about the adverse health effects of fuel wood use.