Chloé Le Coq

Abstract It is often argued that inequality may worsen coordination failures as it exacerbates conflicts of interests, making it difficult to achieve an efficient outcome. This paper shows that this needs not to be always the case. In a context in which two interacting populations have conflicting interests, we introduce ex-ante inequality, by making one population stronger than the other. This reduces the cost of miscoordination for the weakest population, and at the same time it makes some equilibria more equitable than others, thus more focal and attractive for inequality-averse players. Hence, both social preferences and strategic risk considerations may ease coordination. We provide experimental support for this hypothesis, by considering an extended two-population Hawk–Dove game, where ex-ante inequality, number of pure-strategy equilibria, and cost of coordination vary across treatments. We find that subjects coordinate more often on the efficient outcomes in the treatment with ex-ante inequality.

In this paper, we discuss electricity market design in Europe in light of the 2021-23 energy crisis, drawing on several of our Centre on Regulation in Europe (CERRE) reports. We outline the relevant theoretical background with respect to wholesale electricity markets, retail electricity markets, excess profits regulation, renewables support schemes and emergency interventions. We next outline the responses of the European Union, France, Norway, the Netherlands and Great Britain to the crisis. This allows us to make a number of recommendations about the future design of the electricity market in the light of theory and recent experience. These include a role for long-term contracts, the extension of the single market, the place for increased price granularity, appropriate energy taxation and the necessity of better monitoring of National Energy and Climate Plans to ensure adequate aggregate investment.
•We review lessons from the EU and the reactions of four European countries to the 2021-23 energy crisis.•We summarise the theory relevant to the policy responses to the electricity crisis.•We make recommendations for future policy around electricity markets in Europe.•We find that wholesale markets performed well in the crisis, but retail markets less so.

•We examine the population of Swedish legal cartels registered in 1946–1993.•We identify observed (registered) and hidden cartel dynamics.•Antitrust enforcement changes are key in determining cartel births and deaths.•Strengthening antitrust law can deter cartels but does not always destabilize them.•When the law becomes particularly strict, cartels still form but do so undercover.
This paper examines how a gradual tightening of antitrust enforcement impacts cartels’ births and deaths. To avoid the inherent sample selection bias in prosecuted cartel studies, we use a unique dataset of Swedish legal cartels registered between 1946 and 1993. We compare estimates from a count model (considering only registered cartels) and a Hidden Markov Model (allowing for potentially unregistered cartels) to identify observed and hidden cartel dynamics. The count model suggests that strengthening antitrust enforcement has a deterrent effect, but the Hidden Markov Model suggests otherwise. Despite stricter competition laws and a credible threat of cartel prohibition, cartels continue to form, but do so undercover. Additionally, our results suggest that the strengthening of competition law has little impact on destabilizing existing cartels.

Den fullskaliga ryska invasionen av Ukraina har påverkat den europeiska energisäkerheten. Ryska energivaror ansågs vara en viktig faktor i energiom- ställningen; utan den billiga ryska pipeline-gasen måste den gröna omställningen ske snabbare för att förse det europeiska samhället med tillräckliga energitillgångar. Elmarknaderna måste anpassa sig till en verklighet där billig gas inte längre är tillgänglig. Det finns alternativ, men den snabbare omställningen är inte utan kostnader.

We study the effect of scarcity on decision making by low income Swedes. We exploit the random assignment of welfare payments to study their borrowing decisions within the pawn and mainstream credit market. We document that higher educated borrowers borrow less frequently and choose lower loan to value ratios when their budget constraints are exogenously tighter. In contrast, low-educated borrowers do not respond to temporary elevated levels of scarcity. This lack of response translates into a significantly higher probability to default and an 11.6% increase in borrowing cost. We show that a difference in access to liquidity and/or buffer stocks cannot explain our results. Instead a framework, where the awareness of self-control problems is positively correlated with education can explain that high-educated consumers choose a lower LTV as a commitment device to increase their likelihood to repay. Analogously, low-educated with less awareness of their future self-control problems, do not tie themselves to the mast and thus ignore the consequences of their credit decisions when focusing on solving acute liquidity problems. Our findings highlight that increased levels of scarcity risk reinforcing the conditions of poverty through overborrowing. © 2021, The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature.

We conducted a field experiment to identify the causal effect of extrinsic reward cues on the sorting and performance of nascent social entrepreneurs. The experiment, carried out with one of the United Kingdom's largest support agencies for social entrepreneurs, encouraged 431 nascent social entrepreneurs to submit a full application for a grant competition that provides cash and in-kind mentoring through a one-time mailing sent by the agency. The applicants were randomly assigned to one of three groups: one group received a standard mailing that emphasized the intrinsic incentives of the program, or the opportunity to do good (Social treatment), and the other two groups received a mailing that instead emphasized the extrinsic incentives-either the financial reward (Cash treatment) or the in-kind reward (Support treatment). Our results show that an emphasis on extrinsic incentives has a causal impact on sorting into the applicant pool: the extrinsic reward cues led fewer candidates to apply and "crowded out" the more prosocial candidates while "crowding in" the more money-oriented ones. The extrinsic reward cues also increased application effort, which led these candidates to be more successful in receiving the grant. Yet the selection resulting from the extrinsic incentive cues led to worse performance at the end of the one-year grant period. Our results highlight the critical role of intrinsic motives in the selection and performance of social enterprises and suggest that using extrinsic incentives to promote the development of successful social enterprises may backfire in the longer run.

We study the use of financial contracts as bid-coordinating device in multi-unit uniform price auctions. Coordination is required whenever firms face a volunteer's dilemma in pricing strategies: one firm (the “volunteer") is needed to increase the market clearing price. Volunteering, however, is costly, as inframarginal suppliers sell their entire capacity whereas the volunteer only sells residual demand. We identify conditions under which signing financial contracts solves this dilemma. We test our framework exploiting data on contract positions by large producers in the New York power market. Using a Monte Carlo simulation, we show that the contracting strategy is payoff dominant and provide estimates of the benefits of such strategy. 

The creation of adequate investment incentives has been of great concern in the restructuring of the electricity sector. However, to achieve this, regulators have applied different market designs across countries and regions. In this paper we employ laboratory methods to explore the relationship between market design, capacity provision and pricing in electricity markets. Subjects act as firms, choosing their generation capacity and competing in uniform price auction markets. We compare three regulatory designs: (1) a baseline price cap system that restricts scarcity rents, (2) a price spike regime that effectively lifts these restrictions, and (3) a capacity market that directly rewards the provision of capacity. Restricting price spikes leads to underinvestment. In line with the regulatory intention both alternative designs lead to sufficient investment albeit at the cost of higher energy prices during peak periods and substantial capacity payments in the capacity market regime. To some extent these results confirm theoretical expectations. However, we also find lower than predicted spot market prices as sellers compete relatively intensely in capacities and prices, and the capacity markets are less competitive than predicted. © 2017, Springer Science+Business Media New York.

We examine differences in behavior between subjects interacting with a member of either the same or different identity group in both a centipede game and a series of stag hunt games. We find evidence that subjects interacting with outgroup members are more likely to behave as though best-responding to uniform randomization of the partner. We conclude that group identity not only affects player[U+05F3]s social preferences, as identified in earlier research, but also affects the decision making process, independent of changes in the utility function.

This paper proposes a Transit Risk Index (TRI) designed to assess the riskiness of pipeline gas imports and to study the effect of introducing new gas routes. TRI controls for gas dependency, transit route diversification, political risks of transit, pipeline rupture probability, and the balance of power between supplying and consuming countries along the transit route. Evaluating TRI for the EU-Russia gas trade, we show that the introduction of the Nord Stream pipeline would further widen already large disparities in gas risk exposure across the EU Member States. The gas risk exposure of the Member States served by Nord Stream would decline. In contrast, EU countries not connected to Nord Stream, but sharing other Russian gas transit routes with the Nord Stream countries, would face greater gas risk exposure. We discuss the implications of our analysis for the design of the common energy policy in the EU.