Why Germany's 'Gas Price Brake' Encourages Moral Hazard and Raises Gas Prices

18 Pages Posted: 28 Dec 2022

See all articles by Markus Dertwinkel-Kalt

Markus Dertwinkel-Kalt

University of Münster

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE)

Date Written: December 5, 2022

Abstract

To help German households and firms with exploding energy costs, the German government is about to implement a new transfer scheme called "gas price brake." A unique feature of this energy price relief measure is that both households and the industry receive a transfer that increases in one's actual gas price. In a formal model, we show that such a transfer scheme creates incentives for moral hazard of gas providers to raise gas prices. We also show that competition does not help to overcome this adverse effect of the gas price brake. An equivalent critique applies to the electricity price brake that is to be implemented at the same time as the gas price brake.

Keywords: Energy Prices; Energy Policy; Consumer Protection Policy; Gas Price Brake.

JEL Classification: D04, L12, Q48, K33.

Suggested Citation

Dertwinkel-Kalt, Markus and Wey, Christian, Why Germany's 'Gas Price Brake' Encourages Moral Hazard and Raises Gas Prices (December 5, 2022). Available at SSRN: https://ssrn.com/abstract=4294767 or http://dx.doi.org/10.2139/ssrn.4294767

Markus Dertwinkel-Kalt (Contact Author)

University of Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

Christian Wey

University of Düsseldorf - Düsseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany
+49-211-81-15009 (Phone)
+49-211-81-15499 (Fax)

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