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The Price Impact of Energy Vouchers

Abstract:
France and South Korea have implemented voucher programs to counter energy poverty. In contrast to goods that traditional voucher programs target, the market structure that dominates energy supply is the oligopoly. In this paper, we study the price impact of vouchers in this market structure. We first state conditions on demand elasticities that make the choice of vouchers consistent with the regulator’s objective of eliminating energy poverty. We then model a game between energy suppliers and the regulator, where suppliers maximize profit while the regulator ensures that no consumer spends more than a given share of income on energy. From a benchmark case without vouchers, we show that vouchers reduce the energy price under simultaneous decision making or when the regulator moves first. However, the price impact of vouchers is ambiguous if firms move first. This scenario’s price is above the price of the simultaneous decision scenario’s price.

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Keywords: Energy poverty, Vouchers, Oligopoly, Regulation

DOI: 10.5547/01956574.42.3.mpod

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Published in Volume 42, Number 3 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.

 

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