Hyungna Oh

On the first price spike in summer

The objective of this paper is to determine why price spikes occur in deregulated wholesale markets for electricity, and how effectively they can be mitigated by different modifications to the market. The analysis employs a multi-agent system (MAS) to replicate a spot market with six supply firms, represented by adaptive autonomous agents. These firms submit offers to maximize their own expected profits, and an independent system operator (ISO) clears the market for a predetermined load in a uniform price auction. The firms learn about the market and the behavior of their competitors by comparing actual market outcomes with predicted outcomes based on an estimate of their own residual demand curve. This estimated demand curve is updated each period using a Kalman filter. The main results for creating price spikes are: 1) uncertainty about the system load is an important determinant of observed behavior (i.e. offer curves shaped like a hockey stick) that is replicated in the MAS, and 2) all firms eventually become speculators, and it is unrealistic to expect firms to behave like price takers in a market with six suppliers. The main results for mitigating high prices are: 1) it is impractical to rely on more suppliers, vertically integrated firms, capacity payments or fixed contracts for power to eliminate speculative behavior, and 2) price responsive load is an effective way to mitigate high prices, particularly if some load responds at relatively low prices. Overall, the results show that a MAS can be used to evaluate a wide range of policy options and supplement the results of market tests using human subjects.

Testing the Effects of Holding Forward Contracts On the Behavior of Suppliers in an Electricity Auction

The objective of this paper is to test how spot prices are affected by forward contracts using experimental economics. One set of tests used students to represent suppliers in an electricity auction with 1) no forward contracts, 2) permanent forward contracts, and 3) renewable forward contracts. In the latter test, the price of a new forward contract is affected by conditions in the spot market. An identical set of tests was also conducted using computer agents to represent all of the suppliers. The objective was to demonstrate that computer agents can be used effectively to test electricity auctions and do additional sensitivity tests to supplement the results obtained using humans. The results show that holding a forward contract is an effective way to mitigate high prices if the same contract is held for all trading periods and the price of this contract is independent of the spot prices (i.e. is fixed). However, there is more speculation and the spot prices are higher when a forward contract is renewed periodically and spot prices influence the forward price. With a renewable forward contract, a price spike increases a suppliers current earnings in the spot market and expected future earnings from a new forward contract. The overall conclusion is that long-term bilateral contracts will reduce speculative behavior, but this effect will be dissipated in an active forward market with a large amount of secondary trading. The results using computer agents were encouraging. In the first set of tests, two students competed in each market with four computer agents. In almost all cases, the average earnings of the computer agents were higher than the average earnings of the students. In the tests with all computer agents, two computer agents replaced the students, and these agents (latent speculators) were more likely to speculate than the other computer agents. The average spot prices and average earnings with all computer agents corresponded closely to the highest values obtained by the students.

Korea’s approach to overcoming difficulties in adopting the emission trading scheme

In this study, we aim to describe the background for design characteristics of emissions trading schemes (ETS) in developing and emerging economies, with a particular focus on the case of Korea. These countries may face unique hardships such as fierce opposition from industry sectors, the presence of a power imbalance between the Ministry of Environment (MOE) and ministries that are in charge of supporting output growth, and the absence or incomplete development of financial markets and auctioning mechanisms. To overcome these hardships, the Korean government legislated laws that defined timelines for every stage of ETS development, established a strategic governance architecture to make up the weak position of the MOE, offered strong market-stabilizing measures focused on maintaining the allowance price below a certain level, and provided support packages to make the low-carbon transition easy by compensating for losses caused by the Korea Emissions Trading Scheme (KETS). Such policy instruments that made adoption of KETS easier could be obstacles to making it efficient. Policy relevance In the process of adopting a cap-and-trade system, both a developing economy and an emerging economy may face unique hardships, such as strong opposition from industry sectors, the presence of a power imbalance between the Ministry of Environment (MOE) and ministries that are in charge of supporting output growth, and the absence or incomplete development of financial markets and auctioning mechanisms. To make up for the weak base of Korea’s ETS, the government legislated laws that defined timelines for every stage of the ETS development, established a strategic governance architecture to make up for the weak position of the MOE, offered strong market-stabilizing measures focused on maintaining the allowance price below a certain level, and provided support packages to make the low-carbon transition easy by compensating for losses caused by the Korea’s ETS. Korea’s experiences can be shared with other developing economies that are considering adoption of a cap-and-trade scheme.

Does Media Coverage of a Celebrity Suicide Trigger Copycat Suicides?: Evidence from Korean Cases

ABSTRACT This article investigates the link between media coverage of celebrity suicides and the nation’s suicide rate. The instrumental variable regression is applied to suicide data from Statistics Korea and the media coverage data on celebrity suicides from Mediagaon of the Korea Press Foundation during the period from 1997 to 2009. The estimation results demonstrate that Korean celebrity suicides have significantly increased suicide rates, whereas non-Korean celebrity suicides have not. Moreover, greater media coverage of Korean celebrity suicides is associated with an increase in suicide rates. These findings shed light on the importance of media policy in the prevention of copycat suicides.

Using Software Agents to Supplement Tests Conducted by Human Subjects

The objective of this paper is to test whether or not software agents can match the observed behavior of human subjects in laboratory tests of markets. For this purpose, one set of tests uses four software agents and two human subjects to represent six suppliers in three different market situations: no forward contracts, fixed price forward contracts, and renewable forward contracts. An identical set of tests is conducted using software agents to represent all of the suppliers. The results show that software agents were able to replicate the behavior of human subjects effectively in the experiments, and have the potential to be used effectively in testing electricity auctions, doing additional sensitivity tests, and supplementing results obtained using human subjects.

Aggregation bias in stochastic frontier models employing region-level data: an empirical analysis with Korean manufacturing data

A stochastic frontier study often employs aggregate data to analyse the productivity and technical efficiency of regions. In this article, a stochastic frontier model is run on plant-level data and region-level aggregate data. Comparisons of estimated coefficients and characteristics of regional production based on estimation outcomes suggest that an empirical model employing regional-level data can provide misleading results concerning the production function faced by a representative plant in a region.