Effects of the COVID-19 Pandemic on the Spot Price of Colombian Electricity

COVID-19 disease shocked global economic activity and affected the electricity markets due to lockdown and work-from-home policies. Therefore, this study proposes an empirical analysis to identify the electricity spot price response during the preventive and mandatory insulation in Colombia, where the economic contraction caused the largest decrease in the electricity demand, especially in the industrial sector. The methodology applied was quantile regression to quantify the non-linear effect on the spot price returns, and two sample periods were selected to contrast the results: 2018 and 2019. The main findings showed that regulated demand variation caused the highest variability on the spot price dynamic during the strict quarantine. However, the price could not fully capture the effects of the demand change due to the short duration of the shock and, also, the price variability in 2019 was higher than 2020 by an El Niño shock.

Heterogeneity in Price Elasticity of Medicine Demand in China: Moderate Effect From Economic Incentive and Quality Difference

Objectives: Previous studies have shown a wide range of drug price elasticity, but the price response to demand among various therapeutic drug categories and drug types (generic/originator) is still unexplored in China. This study estimates the price elasticity of medicine demand with regard to quality differences, unfair competition, and a regulated market.Methods: Product-level data on anti-tumor, cardiovascular disease (CVD), and antimicrobial drugs were collected from the Tianjin Urban Employees’ Basic Medical Insurance database (2008–2010). The moderating effects of quality, profit incentive, and illegal rebates are considered in a dynamic panel model.Findings: Our results suggest that the price elasticity of drug demand varies across drug categories, with least elasticity for anti-tumor drugs and most elasticity for CVD drugs (−0.192 for anti-tumor drugs vs. −0.695 for antimicrobials vs. −1.100 for CVD drugs, p < 0.01). Moreover, the absolute value of price elasticity of generic drugs is higher than that of originator drugs in anti-tumor and CVD therapeutic classes (interact: 0.716 for anti-tumor; -0.630 for CVD, p < 0.001). We believe that quality difference plays a dominant role in the interaction between quality and illegal rebates for these two kinds of generic drugs. In the antimicrobial sub-group, the absolute value of price elasticity of generic medicine is lower than that of originator drugs. We believe that, owing to the high level of unfair competition among enterprises, the role of illegal kickbacks is dominant, which reduces the price elasticity of demand for generic antimicrobial drugs.Conclusion: Our study provides an overview of the result of interaction between quality and illegal rebates in different medicine markets in China and shows that disease type is a primary factor that impacts price elasticity.

Land Acquisition, Markets and Political Networks: Evidence from the Indian Sundarbans

In recent times, land acquisitions in India for both public and private projects are facing stiff political resistance. Existing studies on land acquisition mostly focus on optimal compensation that would secure the consent of land owners. In this article, we argue that besides compensation, membership in different types of networks such as political parties and self-help groups might influence landowner consent. This could occur either because of pro-social concerns or access to better investment opportunities for the compensation amount. Using survey data from flood prone Indian Sundarbans, where the government sought to acquire land to construct embankments, we find evidence supportive of our hypothesis. The survey elicited reservation price response from land owners for a hypothetical land acquisition program. Our estimates show that land owners with self-help group members are more likely to have a higher ask price for agreeing to land sales. In contrast, controlling for length of party association, members of political networks are more likely to sell their land and have a lower reservation price than their non-political counterparts. Our results suggest that, rather than only increasing the compensation package, which is a stock of wealth, it is equally important to enhance the flow of income to ensure consensual land sales.

Using Price Elasticities of Water Demand to Inform Policy

This survey distills recent work on the price elasticity of demand for urban and agricultural water and outlines how it can inform the design of market-based approaches to manage increasingly scarce water resources. We offer a brief description of the water sector, including the primary users, main water sources, and market failures in the allocation and use of surface water and groundwater. A review of recent empirical research on the price elasticities of agricultural and urban water demand shows the progress made in our understanding of user response to prices and reveals substantial heterogeneity in the price response. We apply what we have learned about elasticities to surface water markets and price-based groundwater management. Heterogeneity in price elasticities suggests that water transfers may lead to large efficiency gains, but that their magnitude is site specific. Groundwater pricing may cost-effectively manage groundwater and fund the development of alternative water supplies, but heterogeneity in elasticity estimates highlights that the conservation and revenue generated is basin specific. Expected final online publication date for the Annual Review of Resource Economics, Volume 13 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Do Households Respond to the Marginal or Average Price of Piped Water Services?

Water utilities commonly use complex, nonlinear tariff structures to balance multiple tariff objectives. When these tariffs change, how will customers respond? Do customers respond to the marginal volumetric prices embedded in each block, or do they respond to an average price? Because empirical demand estimation relies heavily on the answer to this question, it has been discussed in the water, electricity, and tax literatures for over 50 years. To optimize water consumption in an economically rational way, consumers must have knowledge of the tariff structure and their consumption. The former is challenging because of nonlinear tariffs and inadequate tariff information provided on bills; the latter is challenging because consumption is observed only once and with a lag (at the end of the period of consumption). A large number of empirical studies show that, when asked, consumers have poor knowledge about tariff structures, marginal prices, and (often) their water consumption. Several studies since 2010 have used methods with cleaner causal identification, namely regression discontinuity approaches that exploit natural experiments across changes in kinks in the tariff structure, changes in utility service area borders, changes in billing periods, or a combination. Three studies found clear evidence that consumers respond to average volumetric price. Two studies found evidence that consumers react to marginal prices, although in both studies the change in price may have been especially salient. One study did not explicitly rule out an average price response. Only one study examined responsiveness to average total price, which includes the fixed, nonvolumetric component of the bill. There are five messages for water professionals. First, inattention to complex tariff schedules and marginal prices should not be confused with inattention to all prices: customers do react to changes in prices, and prices should remain an important tool for managing scarcity and increasing economic efficiency. Second, there is substantial evidence that most customers do not understand complex tariffs and likely do not respond to changes in marginal price. Third, most studies have failed to clearly distinguish between average total price and average volumetric price, highlighting the importance of fixed charges in consumer perception. Fourth, evidence as of late 2020 pointed toward consumers’ responding to average volumetric price, but it may be that this simply better approximates average total price than marginal or expected marginal prices; no studies have explicitly tested this. Finally, although information treatments can likely increase customers’ understanding of complex tariffs (and hence marginal price), it is likely a better use of resources to simplify tariffs and pair increased volumetric charges with enhanced customer assistance programs to help poor customers, rather than relying on increasing block tariffs.