TY - JOUR T1 - Why have Voluntary Time-of-Use Tariffs Fallen Short in the Residential Sector? JF - Production and Operations Management Y1 - 2020 A1 - Murali,Karthik A1 - Choi,Dong Gu A1 - Lim,Michael Kim A1 - Thomas,Valerie KW - Supply Chain AB - We investigate the causes behind the underwhelming adoption of voluntary Time-of-Use (TOU) tariffs in the residential electricity market. TOU tariffs are deployed by utilities to better match electricity generation capacity with market demand by giving consumers price incentives to reduce their consumption when electricity demand is at its peak. However, consumers in residential electricity markets are heterogeneous in their consumption preferences. Hence, utilities face a trade-off when deploying voluntary TOU tariffs---to provide aggressive price incentives that will only appeal to consumers with flatter profiles or milder incentives to appeal to a larger proportion of the market. Using a game-theoretic model, we identify the key factors that determine the viability of voluntary TOU tariff deployment. On the supply side, the gap between wholesale prices in the peak and off-peak periods determines how much the utility stands to benefit by inducing demand response. On the demand side, heterogeneity within target consumer sets determines how much demand response the utility can induce with a certain price incentive. We show that misaligned incentives between utilities and regulators lead to underwhelming TOU tariff adoption compared to the socially desirable level, and that this under-adoption is worse when consumption preferences are uniformly distributed. We also evaluate the degree of cross-subsidization across tariff structures to identify their implications for equity among the different consumer types, and find that low levels of voluntary TOU adoption are less equitable than the default tariffs. VL - 29 UR - https://doi.org/10.1111/poms.13126 CP - 3 U2 - a U4 - 184214296576 ID - 184214296576 ER - TY - JOUR T1 - The Effects of Ecolabels and Environmental Regulations on Green Product Development JF - Manufacturing and Service Operations Management Y1 - 2019 A1 - Murali,Karthik A1 - Lim,Michael Kim A1 - Petruzzi,Nicholas C KW - Supply Chain AB - Problem definition: We develop a framework for studying the impact of voluntary ecolabels and mandatory environmental regulation on green product development among competing firms. Academic/practical relevance: We contribute to the academic literature on environmental quality competition by explicitly accounting for the credibility of environmental claims made by firms, and by exploring the implications for society of two mechanisms used to remedy credibility-related consumer discounting of firms’ self-declared environmental qualities. We draw parallels between our findings and instances of environmental labeling and regulation from industry to highlight the practical implications of our study. Methodology: We use a game-theoretic framework to analyze a consumer-driven model of green product development. Results: Credibility asymmetry drives product differentiation between two competing firms. The less credible firm always adopts external certification, while the more credible firm does so only if its credibility is sufficiently low. Credibility may also determine whether or not the government should intervene. In the absence of an external certifier, the regulator should intervene by imposing a mandatory environmental standard that is decreasing in stringency as the credibility of the more credible firm increases. In the presence of a certifier, the regulator should intervene if neither firm is sufficiently credible, or if consumers do not value environmental stewardship highly. Managerial implications: We identify how and when government should (and should not) intervene to stimulate green product development when competing firms can use self-labels or external certifications to communicate their environmental performance to consumers. We also determine the optimal strategies for the competing firms and external certifiers. VL - 21 UR - https://doi.org/10.1287/msom.2017.0703 CP - 3 U2 - a U4 - 173352144896 ID - 173352144896 ER - TY - JOUR T1 - The Effects of Ecolabels and Environmental Regulations on Green Product Development JF - Manufacturing and Service Operations Management Y1 - 2019 A1 - Murali,Karthik A1 - Lim,Michael Kim A1 - Petruzzi,Nicholas C KW - Supply Chain AB - Problem definition: We develop a framework for studying the impact of voluntary ecolabels and mandatory environmental regulation on green product development among competing firms. Academic/practical relevance: We contribute to the academic literature on environmental quality competition by explicitly accounting for the credibility of environmental claims made by firms, and by exploring the implications for society of two mechanisms used to remedy credibility-related consumer discounting of firms’ self-declared environmental qualities. We draw parallels between our findings and instances of environmental labeling and regulation from industry to highlight the practical implications of our study. Methodology: We use a game-theoretic framework to analyze a consumer-driven model of green product development. Results: Credibility asymmetry drives product differentiation between two competing firms. The less credible firm always adopts external certification, while the more credible firm does so only if its credibility is sufficiently low. Credibility may also determine whether or not the government should intervene. In the absence of an external certifier, the regulator should intervene by imposing a mandatory environmental standard that is decreasing in stringency as the credibility of the more credible firm increases. In the presence of a certifier, the regulator should intervene if neither firm is sufficiently credible, or if consumers do not value environmental stewardship highly. Managerial implications: We identify how and when government should (and should not) intervene to stimulate green product development when competing firms can use self-labels or external certifications to communicate their environmental performance to consumers. We also determine the optimal strategies for the competing firms and external certifiers. VL - 21 UR - https://pubsonline.informs.org/doi/10.1287/msom.2017.0703 CP - 3 U2 - a U4 - 173352144896 ID - 173352144896 ER - TY - JOUR T1 - Why have Voluntary Time-of-Use Tariffs Fallen Short in the Residential Sector? JF - Production and Operations Management Y1 - 2019 A1 - Murali,Karthik A1 - Choi,Dong Gu A1 - Lim,Michael Kim A1 - Thomas,Valerie KW - Supply Chain AB - We investigate the causes behind the underwhelming adoption of voluntary Time-of-Use (TOU) tariffs in the residential electricity market. TOU tariffs are deployed by utilities to better match electricity generation capacity with market demand by giving consumers price incentives to reduce their consumption when electricity demand is at its peak. However, consumers in residential electricity markets are heterogeneous in their consumption preferences. Hence, utilities face a trade-off when deploying voluntary TOU tariffs---to provide aggressive price incentives that will only appeal to consumers with flatter profiles or milder incentives to appeal to a larger proportion of the market. Using a game-theoretic model, we identify the key factors that determine the viability of voluntary TOU tariff deployment. On the supply side, the gap between wholesale prices in the peak and off-peak periods determines how much the utility stands to benefit by inducing demand response. On the demand side, heterogeneity within target consumer sets determines how much demand response the utility can induce with a certain price incentive. We show that misaligned incentives between utilities and regulators lead to underwhelming TOU tariff adoption compared to the socially desirable level, and that this under-adoption is worse when consumption preferences are uniformly distributed. We also evaluate the degree of cross-subsidization across tariff structures to identify their implications for equity among the different consumer types, and find that low levels of voluntary TOU adoption are less equitable than the default tariffs. U2 - a U4 - 184214296576 ID - 184214296576 ER - TY - JOUR T1 - Municipal Groundwater Management: Optimal Allocation and Control of a Renewable Natural Resource JF - Production and Operations Management Y1 - 2015 A1 - Murali,Karthik A1 - Lim,Michael Kim A1 - Petruzzi,Nicholas C KW - Supply Chain AB - We study a municipal groundwater management problem to determine optimal allocation and control policies in the presence of water transfer opportunities. We establish and characterize threshold polices governing export or import decisions of a given municipality. In the spirit of the Triple Bottom Line (3BL), we ascertain that exporting (importing) water through a water market defined by an exogenous export/import price is detrimental (beneficial) to both society and the environment within the municipality. In contrast, fixed quantity trading between two municipalities defined by an endogenously negotiated export/import price can have positive as well as negative impacts from a global 3BL perspective. In particular, typical trading scenarios that occur between municipalities can be detrimental to the environment. We also study the implications of privatization, and find that a privatized municipality would be more (less) likely to export (import) water as compared to its non‐privatized counterpart, resulting in negative implications for society within the municipality. However, if exports are banned, privatization can benefit the environment by mitigating the damage caused by the extraction differential, a phenomenon analogous to the green paradox. Moreover, careful and restricted privatization of municipalities can lead to positive global 3BL impacts from fixed quantity trading. VL - 24 UR - https://doi.org/10.1111/poms.12389 CP - 9 U2 - a U4 - 173352212480 ID - 173352212480 ER - TY - JOUR T1 - Municipal Groundwater Management: Optimal Allocation and Control of a Renewable Natural Resource JF - Production and Operations Management Y1 - 2015 A1 - Murali,Karthik A1 - Lim,Michael Kim A1 - Petruzzi,Nicholas C KW - Supply Chain AB - We study a municipal groundwater management problem to determine optimal allocation and control policies in the presence of water transfer opportunities. We establish and characterize threshold polices governing export or import decisions of a given municipality. In the spirit of the Triple Bottom Line (3BL), we ascertain that exporting (importing) water through a water market defined by an exogenous export/import price is detrimental (beneficial) to both society and the environment within the municipality. In contrast, fixed quantity trading between two municipalities defined by an endogenously negotiated export/import price can have positive as well as negative impacts from a global 3BL perspective. In particular, typical trading scenarios that occur between municipalities can be detrimental to the environment. We also study the implications of privatization, and find that a privatized municipality would be more (less) likely to export (import) water as compared to its non‐privatized counterpart, resulting in negative implications for society within the municipality. However, if exports are banned, privatization can benefit the environment by mitigating the damage caused by the extraction differential, a phenomenon analogous to the green paradox. Moreover, careful and restricted privatization of municipalities can lead to positive global 3BL impacts from fixed quantity trading. VL - 24 UR - https://onlinelibrary.wiley.com/doi/abs/10.1111/poms.12389 CP - 9 U2 - a U4 - 173352212480 ID - 173352212480 ER -