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Why “Energy Price Brakes” Encourage Moral Hazard, Raise Energy Prices, and Reinforce Energy Savings

Author

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  • Markus Dertwinkel-Kalt
  • Christian Wey
Abstract
To help households and firms with exploding energy costs in the aftermath of the Ukraine war, a new policy called the “energy price brake” was implemented. A unique feature of this relief measure is that it provides a transfer that increases in the consumer’s contractual per-unit price of energy. In a formal model, we show that this policy creates incentives for moral hazard of energy providers to raise per-unit prices. Whereas this moral hazard problem increases the policy’s fiscal costs, it also reinforces energy savings. Whether the policy’s main beneficiaries are consumers or firms depends on the market structure.

Suggested Citation

  • Markus Dertwinkel-Kalt & Christian Wey, 2022. "Why “Energy Price Brakes” Encourage Moral Hazard, Raise Energy Prices, and Reinforce Energy Savings," CESifo Working Paper Series 10163, CESifo.
    • Handle: RePEc:ces:ceswps:_10163
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    energy price policies; energy crisis; energy saving; energy price brake;
    All these keywords.

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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