Drilling and Debt
Erik P. Gilje, Elena Loutskina, Daniel Murphy
Journal of Finance,
No. 3,
2020
Abstract
This paper documents a previously unrecognized debt‐related investment distortion. Using detailed project‐level data for 69 firms in the oil and gas industry, we find that highly levered firms pull forward investment, completing projects early at the expense of long‐run project returns and project value. This behavior is particularly pronounced prior to debt renegotiations. We test several channels that could explain this behavior and find evidence consistent with equity holders sacrificing long‐run project returns to enhance collateral values and, by extension, mitigate lending frictions at debt renegotiations.
Read article
Russia: Ongoing Strong Economic Growth Overshadowed by High Inflation
Martina Kämpfe
Wirtschaft im Wandel,
No. 6,
2008
Abstract
Russian economic growth in 2007 again was driven by strong private consumption and investment, grew by double-digit rates. The roles of budget expenditures and borrowing of private and state-owned firms from abroad in financing investments increased rapidly. Russian inflation climbed again; it was driven up by increases in food prices in line with rising food prices around the world. Inflation pressures had sharpened through more budget spending and scheduled rate increases for electricity and gas as well as for regulated prices for municipal services. Broad money supply (M2) rose rapidly because of strong foreign currency inflows, too. Central bank seeks to bring inflation under control by tightening monetary policy this year. That will somewhat dampen economic growth, but nevertheless GDP growth in the near future will remain at high levels.
Read article
The Contestable Markets Theory - Efficient Advice for Economic Policy
Christian Growitsch, Thomas Wein
External Publications,
2004
Abstract
During the nineties of the last century several formerly monopolistic markets (telecommunication, electricity, gas, and railway) have been deregulated in Germany based on European directives and theoretically inspired by the theory of contestable markets. The original contestable market theory implied three assumptions necessary to be satisfied to establish potential competition: Free market entry, market exit possible without any costs, and the price adjustment lag exceeding the entry lag. Our analysis shows that if the incumbent reduces its prices slowly (high adjustment lag) and the market entry can be performed quickly (low entry lag), a new competitor will be able to earn back sunk costs. Therefore it is not necessary that all three conditions be complied with for potential competition to exist. Applying this „revised“ contestable market theory to the deregulated sectors in Germany, natural monopolies can be identified in telecommunication sections local loops and local/regional connection networks, in the national electricity grid and the regional/local electricity distribution networks, in the national and regional/local gas transmission/distribution sections, and in the railroad network. These sections are not contestable due to sunk costs, expected high entry lags and a probably short price adjustment lag. They are identified as bottlenecks, which should be regulated. The function of system operators in energy and railroad are closely related to the non-contestable monopolistic networks.
Read article
Liberalization of Electricity Markets in Selected European Countries
Albrecht Kauffmann, M. Keim, P. J. J. Welfens
Diskussionsbeiträge des Europäischen Instituts für Internationale Wirtschaftsbeziehungen (EIIW), Bergische Universität Wuppertal, Nr. 124,
No. 124,
2004
Abstract
We look into liberalization issues in the context of the EU Electricity Liberalization. Taking a look at principal issues reveals that the Community Directive 96/92/EC does not really take into account the interdependencies of energy markets. Moreover, third party access is not effectively enforced, particularly not in Germany, where mergers between a major electricity company and the dominant gas company have raised particular issues. Electricity liberalization in Scandinavia is working relatively well. EU accession countries are considered potential electricity exporters in the long run as full restructuring will drive down both energy intensities and electricity intensities. Russia would be wise to quickly become a member country of WTO, not in the least to gain access to Western Europe’s electricity market; the role of Russia so far has been neglected in the discussion of electricity liberalization. Excess capacities in EU-27 can be expected in the medium term. There is considerable doubt that politicians – often with ambitious goals in the field of environmental policy – will allow for a pan-European liberalization of electricity. We also take a closer look at regulatory policy issues.
Read article
Climate protection policy in the housing sector: Lacking impact and need for action
Steffen Hentrich
Wirtschaft im Wandel,
No. 11,
2001
Abstract
Energy savings in the rental housing sector may contribute to the reduction of global greenhouse gas emission. However, emissions have gone up since the early nineties despite of large energy saving potentials. In general the effects of energy saving regulations and support programmes were overestimated. Unfortunately, these programmes ignore market specific restraints.
Markets do not provide optimal incentives to prevent emissions since the costs of greenhouse gas emissions are not fully internalised in fuel prices. Special characteristics of rental housing market in Germany enhance this deficit. Consequently profitable measures of saving energy are neglected. Overall the effectiveness of regulations and support programmes suffers.
Therefore it is necessary to strengthen energy saving incentives. Suitable instruments would include a gradual rise in fuel taxes (Öko-Steuer), a reduction of rental housing market control and measures to improve the transparency of energy consumption.
Read article
Liberalizing public utility industries: Experiences from Great Britain
Ilka Lewington
Wirtschaft im Wandel,
No. 14,
1997
Abstract
Anhand von praktischen Beispielen des britischen Telekommunikations-, Gas-,
Strom-, Wasser- und Eisenbahnwesens wird über die Einführung des Wettbewerbs berichtet. Im Mittelpunkt stehen die Auswirkungen auf Preise und Kosten sowie die Funktionweise der Regulierungsbehörde. Für Deutschland werden Schlussfolgerungen gezogen.
Read article