Source: Dissertation Abstracts International, Volume: 77-12(E), Section: A.

Advisers: Steven Berry; Philip Haile.

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This dissertation investigates issues in Industrial Organization and Energy Economics relevant for energy policy design. Chapter 2 studies the supply of sugarcane ethanol in Brazil, with a focus on the environmental effects of an expansion in production that would follow biofuels mandates. Chapters 3 and 4 study issues in empirical auctions that are especially relevant for the design of oil and gas lease sales.

Biofuels offer one approach for reducing carbon emissions in transportation. However, the agricultural expansion needed to produce biofuels may endanger tropical forests and thus offset the benefits of fossil fuel substitution. Whether this occurs depends on the extent to which increases in biofuels supply arise from gains in yields per acre or expansion in growing areas. In Chapter 2, I use a dynamic model of land use to disentangle the roles played by acreage expansion and yield increases in the supply of sugarcane ethanol in Brazil. The model is estimated using a panel of 1.8 million fields, which is built using remote sensing (satellite) information of sugarcane activities. My estimates imply that, at the margin, 94% of new ethanol comes from increases in area planted and only 6% from increases in yield. Direct deforestation accounts for 12% of area expansion. Balancing carbon emissions from deforestation and the carbon saved by fossil fuel substitution, I find that it would take about 20 years for the lower emissions from sugarcane ethanol to "pay back" the added emissions from deforestation. As an illustrative policy experiment, I consider the effects of a 5 billion gallon sugarcane ethanol mandate (~ 3% of US gasoline consumption). Such policy would lead to a 1% price increase and deforestation of about 9,000 sq. km. (~ 3/4 the size of Connecticut).

In Chapter 3, I study a scoring auction mechanism implemented in Brazil to sell oil and gas exploration rights. Differently from most sales of this kind, bidders had to submit a multi-dimensional bid that included a bonus and an exploratory program. A non-linear scoring rule determined the winner. I develop and implement a methodology to estimate the underlying primitive distribution of tract values and exploration commitment costs. Identification and estimation can be seen as an extension of existing nonparametric approaches from the theory of empirical auctions. Estimating the distribution of those primitives allows the evaluation of counterfactual revenues in alternative bidding schemes. I find that a first price auction would imply a 9.7% higher revenue from the sales examined, an increase in government revenue of 10.3 million U.S. dollars.

In Chapter 4, Giovanni Compiani, Philip Haile and I study unobserved heterogeneity and endogenous participation in auction models, a natural setting to study oil and gas lease auctions. In this framework, characteristics unobserved to the econometrician are important to bidder's valuation. This unobserved heterogeneity typically affects auction participation and bidding. We consider identification of auction models with affiliated values, unobserved heterogeneity and endogenous participation. We allow for continuous unobserved heterogeneity that affects both participation and bidding behavior. Exploiting an exclusion restriction in the participation model, we show point identification of the distribution of valuations in an affiliated private values model, or bidders' signals in a common value model. We use the identification result to show testability of different model specifications under the affiliated values paradigm.