Climate Shocks and Energy Production: The Effect of Drought on Electricity Prices
Gregory L. Torell and Reid B. Stevens
During the 2011 drought, Texas electricity prices rose as generators with water intensive cooling technologies cut back production. We investigate the causal effect of drought and electricity supply using a fixed-effects model. We find that the effect of drought on electricity supply varies with the cooling technology type used by the generator. Generators with water-intensive cooling technologies
respond to drought conditions by raising their average price offered to the market. However, generators that use dry cooling technologies do not raise offer prices, but do increase the total quantity offered during drought periods. These changes in offer prices have measurable effect on dispatch curve order, which leads to lower emissions plants being dispatched during drought. Given that drought intensity and duration is forecast to increase over the coming decades, these findings have important implications for electricity market regulation.
Self-Sustaining Food Labels: Recent evidence from Grass-Fed Beef Markets
Gregory L. Torell, Katherine D. Lee, and Reid B. Stevens
There is a well established literature on third-party monitoring of the labeling schemes for credence goods which suggests that monitoring is critical for the formation of a labeling scheme. If monitoring were not performed, the asymmetric nature of product quality information would incentivize producers to cheat. In this paper, we examine whether the need for third-party monitoring exists in established markets. We show that if wholesale purchasers are concerned about reputation effects, and they hold the loss of future income as a credible threat against cheaters, producers can be sufficiently incentivized to accurately self-label their goods. We apply this framework to the grass-fed beef market, where the USDA ended its program of grass-fed claim verification in 2016.
Defensive Investment in Municipal Water Salinity Reduction
Naima Farah, and Gregory L. Torell
We construct a framework to estimate willingness to pay (WTP) for water hardness reduction from a defensive investment perspective. Applying this framework to total dissolved solids (TDS) data observed in municipal water and point-of-sale scanner data on water softener and related product sales, we provide among the first revealed preference estimates of WTP for water salinity reduction and quality control. Exploiting fixed-effects regressions and instrumental variable regressions, we find that household's marginal WTP increases as the observed TDS in municipal water increases. Our WTP estimations provide important policy implication for optimal water quality management
of the water municipalities.