Publications
Demystifying RINs: A Partial Equilibrium Model of US Biofuel Markets (link; with David R. Just)
Energy Economics 64 (2017): 353-362
We explore four fundamental channels of mandate compliance available under current U.S. biofuel policy: increased ethanol blending through E10 or E85, increased biodiesel blending, and a reduction in the overall compliance base. Simulation results highlight the interplay and varying importance of these channels at increasing blend mandate levels. In addition, we establish how RIN prices are formed: The value of a RIN in equilibrium is shown to reflect the marginal cost of compensating the blender for employing one additional ethanol-equivalent unit of biofuel. This contrasts with existing research equating the price of RINs to the gap between ethanol supply and demand evaluated at the mandate level. We demonstrate the importance of this distinction in case of binding demand side infrastructure constraints such as the ethanol blend wall: as percentage blend mandates increase, the market for low-ethanol blends may contract in order to reduce the overall compliance base. This has important implications for implied ethanol demand in the economy.
Who Will Pay for Increasing Biofuel Mandates? Incidence of the Renewable Fuel Standard Given a Binding Blend Wall (link; with Harry de Gorter and David R. Just)
American Journal of Agricultural Economics 101 (2) 2018: 492–506
We show that the cost of increasing biofuel mandates given a binding ethanol blend wall falls disproportionately on diesel fuel consumers. The extent of the burden on diesel fuel consumers is explained neither by their relatively more inelastic demand nor by blenders seeking to capitalize on the biodiesel tax credit. Relaxing the blend wall constraint by increasing the potential demand for high-ethanol blends is the only effective lever to insulate diesel fuel drivers from the one-sided welfare impacts of rising mandate levels. The independent effects of the nested mandate structure and the joint compliance base under the Renewable Fuel Standard (RFS) generate the link between motor gasoline and diesel fuel markets. Our results highlight the importance of evaluating the incidence of the RFSin a holistic framework taking both ethanol and biodiesel into account.
Energy Economics 64 (2017): 353-362
We explore four fundamental channels of mandate compliance available under current U.S. biofuel policy: increased ethanol blending through E10 or E85, increased biodiesel blending, and a reduction in the overall compliance base. Simulation results highlight the interplay and varying importance of these channels at increasing blend mandate levels. In addition, we establish how RIN prices are formed: The value of a RIN in equilibrium is shown to reflect the marginal cost of compensating the blender for employing one additional ethanol-equivalent unit of biofuel. This contrasts with existing research equating the price of RINs to the gap between ethanol supply and demand evaluated at the mandate level. We demonstrate the importance of this distinction in case of binding demand side infrastructure constraints such as the ethanol blend wall: as percentage blend mandates increase, the market for low-ethanol blends may contract in order to reduce the overall compliance base. This has important implications for implied ethanol demand in the economy.
Who Will Pay for Increasing Biofuel Mandates? Incidence of the Renewable Fuel Standard Given a Binding Blend Wall (link; with Harry de Gorter and David R. Just)
American Journal of Agricultural Economics 101 (2) 2018: 492–506
We show that the cost of increasing biofuel mandates given a binding ethanol blend wall falls disproportionately on diesel fuel consumers. The extent of the burden on diesel fuel consumers is explained neither by their relatively more inelastic demand nor by blenders seeking to capitalize on the biodiesel tax credit. Relaxing the blend wall constraint by increasing the potential demand for high-ethanol blends is the only effective lever to insulate diesel fuel drivers from the one-sided welfare impacts of rising mandate levels. The independent effects of the nested mandate structure and the joint compliance base under the Renewable Fuel Standard (RFS) generate the link between motor gasoline and diesel fuel markets. Our results highlight the importance of evaluating the incidence of the RFSin a holistic framework taking both ethanol and biodiesel into account.
WORKing papers
Taking a Load Off: Experimental Evidence of Preferences for Control with an Application to Residential Electricity Demand (Job Market Paper)
The rising share of renewable generation has led to an increased focus on demand-side mechanisms to balance the electric grid. For example, Direct Load Control (DLC) contracts allow utilities to curtail the electricity use of participating households at times of system stress. I use a novel experimental design to show that intrinsic preferences for control can significantly impact the rewards required to encourage consumers to participate in such contracts. In particular, I test for the existence, magnitude, and attributes of a control premium in a lab environment which mimics basic features of the DLC context. I find that participants on average exhibit a control premium of 9-32% above the instrumental value of the decision, which responds to both the probability and stakes of ceding control. There is limited evidence for the existence of an endowment effect with respect to control. Participants' stated motivations underlying their decisions are consistent with an inflation of (perceived) option value that cannot be explained by probability weighting.
Choice Uncertainty and the Endowment Effect (link; with Steven G. Otto)
We experimentally test for the role of choice uncertainty in generating “endowment effects” - the robust empirical finding that endowing participants with an item raises their valuation relative to participants being asked to purchase it instead. While there is some compelling evidence concerning trade uncertainty in the literature, there is substantially less evidence regarding the importance of choice uncertainty. This paper provides novel support for the significance of choice uncertainty in the context of both trading and stated valuations. We find that reducing choice uncertainty eliminates under-trading in the exchange setting and decreases (but does not eliminate) the difference in average valuations reported by buyers and sellers, mainly by decreasing the number of extreme valuations by sellers. Interestingly, our treatment does not lead to a significant increase in the number of mutually acceptable trades implied by stated valuations. Comparing the results from our two experiments therefore suggests that value uncertainty continues to play a role in generating valuation asymmetries even after relevant product uncertainty has been resolved.
Graphical Representation in Regression Discontinuity and Kink Designs (with Carl Lieberman, Jordan Matsudeira, Zhuan Pei and Yi Shen)
Regression discontinuity design (RDD) has gained traction across social science fields as a leading quasi-experimental strategy to assess policy impacts. Graphical presentation is to a large extent responsible for this growing popularity, and it is now an integral part of any well-executed RDD study. The key graph in any RD paper plots the bivariate relationship between the outcome variable Y and running variable X, and is meant to convey a discontinuity or the lack thereof in the conditional expectation function as X crosses a policy threshold. A number of recommendations have been made on how to construct these graphs. Since the success of a graphical technique ultimately lies in the correct subjective perception of the reader, we propose an experimental approach to evaluate competing RD graphical methods by aggregating readers' perceptions through crowdsourcing. We conduct a series of randomized experiments where we present RD plots based on data generating processes specified on datasets from published papers and generated by different graphical parameters. Each participant in the experiment is shown a series of graphs, asked to classify the existence of a discontinuity in the graphs, and financially rewarded for correct classifications. We also study graphical presentation in the regression kink design with an analogous approach.
The rising share of renewable generation has led to an increased focus on demand-side mechanisms to balance the electric grid. For example, Direct Load Control (DLC) contracts allow utilities to curtail the electricity use of participating households at times of system stress. I use a novel experimental design to show that intrinsic preferences for control can significantly impact the rewards required to encourage consumers to participate in such contracts. In particular, I test for the existence, magnitude, and attributes of a control premium in a lab environment which mimics basic features of the DLC context. I find that participants on average exhibit a control premium of 9-32% above the instrumental value of the decision, which responds to both the probability and stakes of ceding control. There is limited evidence for the existence of an endowment effect with respect to control. Participants' stated motivations underlying their decisions are consistent with an inflation of (perceived) option value that cannot be explained by probability weighting.
Choice Uncertainty and the Endowment Effect (link; with Steven G. Otto)
We experimentally test for the role of choice uncertainty in generating “endowment effects” - the robust empirical finding that endowing participants with an item raises their valuation relative to participants being asked to purchase it instead. While there is some compelling evidence concerning trade uncertainty in the literature, there is substantially less evidence regarding the importance of choice uncertainty. This paper provides novel support for the significance of choice uncertainty in the context of both trading and stated valuations. We find that reducing choice uncertainty eliminates under-trading in the exchange setting and decreases (but does not eliminate) the difference in average valuations reported by buyers and sellers, mainly by decreasing the number of extreme valuations by sellers. Interestingly, our treatment does not lead to a significant increase in the number of mutually acceptable trades implied by stated valuations. Comparing the results from our two experiments therefore suggests that value uncertainty continues to play a role in generating valuation asymmetries even after relevant product uncertainty has been resolved.
Graphical Representation in Regression Discontinuity and Kink Designs (with Carl Lieberman, Jordan Matsudeira, Zhuan Pei and Yi Shen)
Regression discontinuity design (RDD) has gained traction across social science fields as a leading quasi-experimental strategy to assess policy impacts. Graphical presentation is to a large extent responsible for this growing popularity, and it is now an integral part of any well-executed RDD study. The key graph in any RD paper plots the bivariate relationship between the outcome variable Y and running variable X, and is meant to convey a discontinuity or the lack thereof in the conditional expectation function as X crosses a policy threshold. A number of recommendations have been made on how to construct these graphs. Since the success of a graphical technique ultimately lies in the correct subjective perception of the reader, we propose an experimental approach to evaluate competing RD graphical methods by aggregating readers' perceptions through crowdsourcing. We conduct a series of randomized experiments where we present RD plots based on data generating processes specified on datasets from published papers and generated by different graphical parameters. Each participant in the experiment is shown a series of graphs, asked to classify the existence of a discontinuity in the graphs, and financially rewarded for correct classifications. We also study graphical presentation in the regression kink design with an analogous approach.