Regulatory jurisdiction and policy coordination: A bi-level modeling approach for performance-based environmental policy

Makoto Tanaka*, Yihsu Chen, Afzal S. Siddiqui

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

1 Citation (Scopus)
40 Downloads (Pure)

Abstract

This study discusses important aspects of policy modeling based on a leader-follower game of policymakers. We specifically investigate non-cooperation between policymakers and the jurisdictional scope of regulation via bi-level programming. Performance-based environmental policy under the Clean Power Plan in the United States is chosen for our analysis. We argue that the cooperation of policymakers is welfare enhancing. Somewhat counterintuitively, full coordination among policymakers renders performance-based environmental policy redundant. We also find that distinct state-by-state regulation yields higher social welfare than broader regional regulation. This is because power producers can participate in a single power market even under state-by-state environmental regulation and arbitrage away the CO2 price differences by adjusting their generation across states. Numerical examples implemented for a stylized test network illustrate the theoretical findings.

Original languageEnglish
Pages (from-to)509-524
Number of pages16
JournalJournal of the Operational Research Society
Volume73
Issue number3
DOIs
Publication statusPublished - 4 Mar 2022
MoE publication typeA1 Journal article-refereed

Keywords

  • bi-level modeling
  • leader–follower game
  • OR in environment and climate change
  • performance-based policy
  • power market

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