Conference Agenda
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Daily Overview |
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Renewable Energy Policy and Economic Effects Location: B002 Session Chair: Antonio Bento, University of Southern California | |
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The Political Marginal Value of Public Funds: Evidence from Cross-Border Electricity Infrastructure 1: University of Southern California,NOVA School of Business and Economics; 2: University Of Manchester; 3: University of Aberdeen Cross-border infrastructure projects often promise large welfare gains yet fail because they require consent from multiple jurisdictions with misaligned fiscal incentives. We develop a welfare framework for evaluating such projects when political participation constraints bind. We introduce the Political Marginal Value of Public Funds (PMVPF), a criterion that measures policy value net of the compensation required to secure universal consent. In a theoretical network model with decentralized budgets, projects with the largest aggregate efficiency gains can impose the largest concentrated losses, leading to sharp ranking reversals once political feasibility is taken seriously. We apply this framework to European electricity interconnectors using a sufficient-statistics approach with high-frequency data on prices, flows, and transmission outages. We show that while standard efficiency metrics imply welfare gains that are dozens of times larger than the fiscal cost of investment, political compensation absorbs roughly 80–90 percent of aggregate gains, clustering the PMVPF near one. Preliminary simulations indicate that political implementation costs can exceed engineering costs by an order of magnitude, providing a quantitative explanation for persistent underinvestment in cross-border transmission infrastructure. | |