From Airbnb to Solar: Toward a Transaction Cost Model of a Retail Electricity Distribution Platform

40 Pages Posted: 22 Aug 2018 Last revised: 3 Mar 2019

See all articles by L. Lynne Kiesling

L. Lynne Kiesling

Purdue University - Department of Economics

Michael C. Munger

Duke University - Department of Political Science; Duke University - Department of Economics; Institute for Corruption Studies

Alexander Theisen

Northwestern University

Date Written: January 21, 2019

Abstract

Digital technologies have reduced transaction costs and led to platform business models and the sharing economy. Platform business models are increasingly part of policy debates in electricity distribution and retail due to the proliferation of digital and distributed energy resource (DER) technologies, such as residential rooftop solar. What are the implications of falling transaction costs and platform business models in electricity distribution and retail, and in the burgeoning markets for DERs? Our core insight is that excess capacity is variable, and varies inversely with transaction costs. Digital platform business models enable asset owners to rent out this excess capacity. Here we propose a two-stage transaction cost model to represent the effects of transaction cost-reducing innovation on two aspects of such transactions: gains from trade in sharing, and the margin that divides renters from owners. We analyze the equilibrium comparative statics of the model to derive observable predictions, and find that the rental market option makes the opportunity cost of excess capacity salient. As peer-to-peer transactions in energy capacity become more feasible, our results suggest that ownership of DER capacity will be driven less by one's expected intensity of use and more by relative price concerns and subjective preferences for energy self-sufficiency or environmental attributes.

Keywords: transaction costs, platforms, digital, networks, peer-to-peer markets, electricity, renewable energy, distributed energy resources

JEL Classification: D23, D47, L17, L94, O33, Q42

Suggested Citation

Kiesling, L. Lynne and Munger, Michael C. and Theisen, Alexander, From Airbnb to Solar: Toward a Transaction Cost Model of a Retail Electricity Distribution Platform (January 21, 2019). Available at SSRN: https://ssrn.com/abstract=3229960 or http://dx.doi.org/10.2139/ssrn.3229960

L. Lynne Kiesling (Contact Author)

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

Michael C. Munger

Duke University - Department of Political Science ( email )

140 Science Drive (Gross Hall), 2nd floor
Duke University Mailcode: 90204
Durham, NC 27708-0204
United States
919-660-4301 (Phone)
919-660-4330 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Institute for Corruption Studies

Stevenson Hall 425
Normal, IL 61790-4200
United States

Alexander Theisen

Northwestern University ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

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