KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

KDI FOCUS The Political Slant of Web Portal News and the Implications Relating to the Fake News Phenomenon

□ The argument that the news selection of Korean web portals is politically biased lacks not only objective evidence but also discourse on what the causes are. If web portals provide a sufficient amount of variety in their news contents, it may be unnecessary to regulate the average bias. However, a cautious approach is needed when expanding algorithm-based news feed services as the selective consumption of personalized news will polarize public opinion, which in turn, will serve to further disseminate fake news.

- Web portals have editing teams that select and assign news contents.

- In the past, bias was commonly measured in a subjective or arbitrary manner.

- The partisanship was measured strictly based on statistics and not the researcher’s arbitrary judgement.

- The political leanings of web portals measured on a specific time line is the result of public opinion of a certain event.

- Web portals have an incentive to maximize their advertising profit by increasing the number of users’ clicks.

- Consumers tend to reduce additional news consumption in the news section when they agree less with the views of the posted article.

- The political bias of portal news is related to the portal’s profit structure.

- Personalized news feed could take away the chance for consumers to experience the diversity of news contents.

- The erosion of public trust in mainstream media and the increased use of SNS amplified the spread of fake news.

- In Korea, web portal can serve as a checking mechanism that suppress the echo-chamber effect incurred by SNS.

- Diversity indicators can be developed using the level of bias in portal news.

- News with diverse perspectives should be made available via web portals.

Summary

Policy Study KOR Internet Portal Competition and Economic Incentive to Tailor News Slant

In this study, we examine the economic incentive to select political bias of news on Internet portals. The news slant is measured based on the expressions in congressional speeches in 2015, following Gentzkow and Shapiro (2010). The whole articles posted on two major domestic portals in the same year are used for the analysis. The higher the index value, the stronger the slant toward the ruling party. As a result, both portals locate somewhat farther from the ideology of the ruling party. Also, as the difference between portal and user increases, the number of clicks on news page decreased. The slant of portal was positively correlated with consumer 's political preference. In other words, consumers try to click on more news close to one’s preference, and the portal seems to select the news contents accordingly. We can interpret this as a profit maximization strategy of the portals in the online advertising market. In addition, there is a differentiation effect between the two portals regarding the news slant, but the size is small. These results suggest that a further discussion on the relevance and effectiveness of self-regulation in the portal news industry is necessary.

Summary

Policy Study KOR Economic Effect of Regulatory Reform in Logistics Industry

This research reviews regulations on logistics/transportation industry and attempts to quantify the effects on GDP per capita from changes of such regulations. South Korea’s transportation industry has been gradually expanding, however, the industrial structure is still short rooted. In 2014, average number of hours worked is 5th highest and wage margin 12th smallest out of 18 industries. Furthermore, the regulations for this industry appear to be stricter than those of other industries. OECD’s logistics/transportation industry regulatory index for South Korea has been decreasing for the last 40 years but still exceeds those of EU, Japan, US, and other countries.
This paper provides supporting reasons for regulatory reforms by analyzing the ripple effects on GDP. A fixed-effect model is used to observe the influence that regulatory index of transport/logistics industry which is branched under network industry has on GDP per capita. Ratio of trade on GDP, enrollment rate to primary school, energy usage per capita, and population were the control variables in the model. OECD countries were the samples evaluated and robustness checks were conducted by separating the sample by income and non-manufacturing industries’ contribution to GDP. The transport logistics industry regulatory index was lower for countries with GDP per capita of $30,000 or above and higher for manufacturing-concentrated countries. Estimation reveals that 10% of decrease in transportation/logistics regulatory index is correlated with 2.16% increase in GDP per capita. Thus, we argue that mitigating regulations on market entries, price determination, ownership structures of network industry, vertical integrations and etc. can improve the economy of South Korea.
Since, among three categories of transportation/logistics industry, rail industry shows the highest effect from regulatory reform on the economy, this study looks into the regulations in the rail freight/passenger industry. Other countries with regulatory reform on market entry show increase in market effectiveness through lower cost and higher demand. Adopting competitive bidding or open access system might be an apposite policy allowing private companies to enter the infrastructure industry. Also, in terms of price regulation, this paper suggests railway industry higher price for passenger transport and lower price for freight transport.

Summary

Policy Study KOR Past, Present and Future of Public Key Certificate Policy in Korea’s Electronic Commerce

Based on the observation that electronic commerce is growing fast in the distribution service of Kore today, this paper intends to look on the background and arguments with respect to the policy that mandates the use of public key certificate in electronic payment, to analyze social well-being effects of adoption and abolition of the policy through an theoretical model, and then to provide policy recommendations for the future growth in electronic commerce.

Public key certificate, also known as authorized certificate, was adopted in the Digital Signature Act enacted on July 1999. Then, in 2002, the Korean government launched the mandatory use of authorized certificate in electronic financial transactions with a purpose of enhancing stability and reliability of electronic commerce, but has encountered several criticism which is directed at largely two targets: the technology currently used by "licensed certification authority" and the mandatory enforcement of a specific technology by mandating the use of authorized certificate in electronic financial transactions.

This policy however is not consistent with the ‘technological neutrality’ principle stipulated in the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Electronic Commerce (1996): the principle of technological neutrality mandates the adoption of provisions that are neutral with respect to technology used. In light of the rapid technological advances, neutral rules aim at accommodating any future development without further legislative work.” This principal has been already accepted in Korea’s Framework Act on Electronic Documents and Transactions and Digital Signature Act. However, the Electronic Financial Transactions Act gave the Financial Services Commissions the authority to determine authorization methods of electronic financial transactions, and the Commissions had not, until recently, accepted the principle of technological neutrality.

This paper finds in its analysis of theoretical model that the preference of market participants is a significant factor to consider when government intervenes in market standardization: the use of authorized certificate in this paper. Standardization may have several merits but at the cost of diversity and innovation. This is what government should be attentive to. It is often the case that in the rapidly growing electronic commerce, the costs of standardization exceeds the benefits.

In order to further foster and develop electronic commerce technologies and industry, the government needs to focus on two policies. First, to strengthen consumer protection. Concerns regarding the current authorized certificate with Active-X-based security mechanism are mostly about its weakness against electronic attacks such as hacking and phishing. Indeed, the number of privacy complaint reports since 2003 has increased continuously at a fast rate of 30.54 percent on an annual average basis. The number of data breaches that expose authorized certificates has increased exponentially, too. However, technologies for ‘prevention of denial of service (DoS)’ attack have not worked fair for users. More specifically, when hacked or illegally obtained authorized certificate is signed digitally, it is difficult for the victim to prove that the signer of the signature is not himself. As a result, when financial incident occurs, fewer financial firms are held account for and more users remain responsible. So, the government needs to more actively embrace the concept of consumer protection and should make more efforts for it.

Second, to comply with the principles of private sector-led initiative and technological neutrality. The problem with the policy on authorized certificate lies in the mandatory enforcement of a specific technology, hence little contribution to technological and industrial innovation. This is why international and domestic laws written in the early stage of electronic commerce stated the compliance with the two principles. Today, there are already several and various types of authorization methods and signature technologies, and relevant industries are growing fast. For a fast growth in industries for information security and electronic payment, future regulations on electronic commerce and internet should be constructed to be in compliance with the principles of private sector-led initiative and technological neutrality.

Summary

Research Monograph KOR Korean Systems for Achieving Resource Adequacy in Electric Power Industry

This study assesses Korean systems for achieving resource adequacy in the electric power industry from the aspects of stability and efficiency in achieving resource adequacy and of system strength and predictability, and then agendas for system improvement are drawn from perspectives of power supply stability, energy security and climate change response.

Chapter 2 shows that resource adequacy problem in the electric power industry is derived from the lack of demand response and the nature of operating reserve as public goods, added by detailed descriptions of basic logics behind the two main approaches- energy-only market approach and capacity mechanism approach in pursuing resource adequacy in the electric power industry- and the system design of those in reality. These accounts are followed by the assessment of relative merits and demerits of those approaches in the aspects of stability and efficiency in achieving resource adequacy, which can be recapped as follows: when it comes to securing optimal generation capacity, the approach of capacity mechanism, particularly the method of reserve requirement, works relatively better, while when it comes to providing incentives for operating generation facility efficiently and to reviving demand response, the approach of energy-only market works better. Lastly, recent attempts to integrate relative merits of the two approaches are introduced.

Chapter 3 looks into the establishment of the Basic Plan on Electricity Demand and Supply-which Korea has been operating in order to achieve resource adequacy in the electric power industry, the energy market based on the cost-based pool (CBP), capacity payment, the market for ancillary service, and the demand-side management system and pricing in terms of its current state, problem, nature and function. It also assesses each system from the aspects of stability and efficiency in achieving resource adequacy and of system strength and predictability.

Above all, the Basic Plan brings negative impacts on stable achievement of resource adequacy and efficient investment in new facility due to the lack of compulsory means for investment, limited decision-makers on the subject of uncertainty, the shortage of linkage between generation and transmission plans and the lack of ability to coordinate the timing of investment. The CBP-based energy market contributes to efficient investment in new facility by deterring the possibility of market power at play and containing market risks, but on the other hand it disturbs efficient operation of generation facility and further invigoration of demand response by repressing market price volatility. The correction factor system in particular significantly undermines the incentives for power producers to operate power generation facility in more efficient manner. The capacity payment system is run on inefficient reference capacity price and indiscriminative capacity payment, bringing negative impacts on a stable achievement of resource adequacy and efficient investment in new equipments. Meanwhile, it is analyzed that the capacity payment applying regional differences affects positively the generation site designation to be more efficient, while that applying seasonal and hourly differences affects positively the operation of generation facility to be more efficient. As for the market for ancillary service, excessively low operating reserve requirement and below-cost pricing undermine stable achievement of resource adequacy and efficient operation of generation facility. The retail price structure and electricity sales monopoly, in which the volatility of energy market price is completely removed or only a part of it is delivered to consumers, hinder the invigoration of demand response. Lastly, the Basic Plan on Electricity Demand and Supply, the energy market based on the CBP and capacity payment are all analyzed to be not stable and even weak in the aspect of system predictability.

Chapter 4 demonstrates that the shortfall of power transmission facility today is derived from Korea’s current structure of investment planning and implementation for power transmission network. It also accounts for the need to take differentiated approaches towards policy resources such as nuclear and new renewable energy and market resources such as coal and LNG power generation from the perspectives of energy security and climate change response. In Section 2, based on assessment results and discussions above, improvement agendas to achieve resource adequacy in Korea are suggested in eight categories as follows: ① rationalizing energy price and taxation; ② strengthening the transmission network investment plan in terms of its leading role, acceptance and accountability; ③ improving the Basic Plan on Electricity Demand and Supply; ④ adopting the method of reserve requirement; ⑤ improving the way of operating the energy market; ⑥ rationalizing ancillary service requirements and its unit price; ⑦ developing policy measures regarding the adoption of sales competition; and ⑧ planning and announcing a roadmap for system implementation. Above all, for improving the Basic Plan on Electricity Demand and Supply, active disclosure of information would be effective in order to properly forecast future demand for power, and for achieving energy security and better climate change response, entry barriers need to be lowered as to market resources such as coal and LNG power generation. In addition, in order to make the Basic Plan work more effectively, it is necessary to come up with a master plan that comprehensively covers all energy-related plans. Taking into account the forecast for Korea’s future electricity power demand, political burden weighted by the goal of achieving resource adequacy, consumers’ confidence in the market and public awareness of regulatory risks resulting from government intervention, it would be better for Korea to achieve resource adequacy in a stable manner, not efficient. So, it can be said that the approach of capacity mechanism is more suitable to the reality than that of energy-only market is; within the capacity mechanism, the method of reserve requirement works better than the current capacity payment method does. This study presents concrete measures to transform the current capacity payment method into the reserve requirement system.

Summary

Policy Study KOR The Basic Plan for the Demand and Supply of Electricity and the Efficiency of Investment in Generation Capacity in Korea

Korea has suffered from a chronic shortage in the generation capacity since the restructuring of the electricity market in 2001. The distortion in the generation mix, under the current cost structures of various generator types estimated by the government, has also persisted and shows no sign of improvement. In addition, the demand forecast by the government has been consistently lower than the actual realized demand by large margins. These facts suggest that there could be significant barriers to entry into the generation stage of the electricity market in Korea.

This report analyzes the market for investment in new generators in Korea and the effects of relevant laws, regulations, and procedures that the government uses on the efficiency of the market. Main problems in the current system the report found are as follows:

∙Korea did not amend the laws relevant to the entry into the generation stage of the electricity market, which had been introduced during the vertically integrated SOE monopoly regime of the Old KEPCO, to make them compatible with competition in the generation stage.
∙Korea continued to use the Basic Plans for Demand and Supply of Electricity, which had been used before the restructuring under the vertically SOE monopoly.
∙Since the restructuring, there has been a big uncertainty about the precise nature of the Basic Plan, which allowed the government to interpret the nature in an arbitrary way.
∙Interpretation of the Basic Plan changed substantially in 2006, leading to the current heavy intervention of the government in the procedure that determined the investment of generation companies in new generators.
∙Since 2006, the government essentially fixed the total capacity and the generation mix to be built in future years and selected firms that would be allowed to build and operation new generators.
∙Since 2006, selection of investors has been done through beauty contests. The criteria used in selecting investors changed substantially in the last several years.
∙Very little information is known about the methodology the government uses in estimating future demand and the optimal capacity and generation mix. However, there are reasons to believe that a systematic bias in estimating demand has existed.
∙Current procedures used to determine investment in generators are likely to lead to inefficiency in investment. The Current Basic Plan, that essentially determines the total capacity and the generation mix, is likely to lead to a shortage in capacity and persistent distortions in generation mix. The beauty contest currently used by the government to select investors is also inconsistent with competition in the wholesale market.

This report proposes a set of measure that can induce a more effective competition in the market for investment in new generation capacity. It also suggests measures that would enhance transparency and credibility of the forecasting of future demand. The policy recommendations include:

∙Removal of the Basic Plan for Demand and Supply from the procedures relevant to licensing of the construction and operation of new generators.
∙Fundamental changes in relevant laws that would remove or substantially lower entry barriers into the generation stage of the electricity market and would make the licensing procedures of new generators compatible with competition in the wholesale market.
∙Changes in the capacity pricing rule that would give a correct signal to investors about the profitability of investment in new generators.
∙Measures that would give the government a stronger incentive to estimate future demand for electricity more accurately.

Summary

Policy Study KOR The Impact of Collaboration between Public and Private Institutions on Productivity of Scientific Research: Evidence from Human Embryonic Stem Cell Project

Human Embryonic Stem Cell (Hesc) research can contribute to life science and medical technology in both academic and commercial ways; at the same time it requires collaboration among various institutions in terms of the size of R&D fund, the incentives to do research and the complexity of underlying knowledge. Recently, policy makers have got interested in collaborative research between public and private institutions as a way of conducting basic science. However, there has been a heated debate on whether the participation of private firms in basic science could effectively improve research productivity. Specifically, in one hand, these private firms tend to abandon basic research too early if they cannot expect to earn positive profits within a short period of time and to keep their findings secret instead of sharing them; such tendency can delay the accumulation of scientific knowledge and undermine the productivity of basic science research. On the other hand, because of their emphasizing market performance, for-profit firms are more likely to try innovative experiments or approaches, which could improve research productivity. Although such different opinions suggest very different science policies, few empirical studies have been conducted to analyze whether the participation of private companies would be effective or not, and if they need to participate, how and in what stage private firms need to do so in order to generate scientific results productively.

Using publication data on Hesc, this study examines the impact of collaboration between public and private institutions on productivity of scientific research. Specifically, this study develops several variables measuring quality, influence, originality and diversity of research output. By using these measures and econometric approach, this study empirically analyze the effect of collaborative research and participation of private firms on research productivity.

Results are as follows: the Hesc research papers from collaboration are more likely to be published in prestigious journals (quality), referenced more frequently in subsequent papers (influence). However, collaborative research does not seem to explore new research topics (originality) or to provide research outcomes that generates more subsequent studies (diversity). When private firms participate in Hesc research, few or even negative impacts on research outcomes are observed. For instance, evidence shows that the research teams with private firms tend to generate articles with less quality, less influence, and less originality compared to research teams without private firms. The only case that the participation of private firms produces productive results is when private firms and hospitals are teamed up; this type of research team seems to produce research outcomes that generate subsequent studies with various topics.

The results of this study imply that the participation of private firms in basic science needs to be considered in a very careful manner; when a scientific field with high potential for commercializa- tion has yet to accumulate fundamental findings enough, we need to enhance collaboration among universities, public research institutions and hospitals at the early stage of research; we begin to involve private firms only after a sufficient amount of fundamental findings is accumulated. Finally, results of this study imply that research partners of public sector need to be broadened to include research hospitals and other various institutions, other than private firms.

Summary

Research Monograph KOR Competition Policy for the Electricity Industry of Korea

This report describes the development of the electricity industry of Korea since its restructuring in 2001, analyzes the policies of the Korean government, focusing on competition policy for the wholesale electricity market, and proposes a set of recommendations that could potentially improve the efficiency of the industry. The most serious problem plaguing the wholesale electricity market is the inadequate rules for determining energy prices and the capacity price. Rules for determining energy prices kept changing since restructuring but have always been based on cost based. Further, the rules allowed energy prices to vary according to the ownership structure of a generation company and the fuel type. Capacity price is ostensibly based upon the concept of an equilibrium price in the spot market for capacities. But it is actually determined by a formula that relies on a particular PPA contract which has little to do with the opportunity cost of capacities in the spot market.

Current regulation of tariffs for transmission, distribution, and retail services imposed on KEPCO, which officially takes the form of rate of return regulation, also deviates considerably from a standard practice of rate of return regulation and causes inefficiency in both the monopoly parts and the wholesale market. It targets not only KEPCO but also its subsidiary gencos that compete with other gencos in the wholesale market and attempts to regulate the profitability of KEPCO and its gencos through a combination of regulation on retail tariff level and special discount factors that apply selectively to KEPCO’s gencos in the wholesale market. In addition, current policy on the governance of KEPCO and KEPCO’s gencos put serious restrictions on the profit incentives of them and allow the government a large degree of freedom in intervening in their management.

Based on the analysis of the structural problems and the comparison of the institutional arrangements governing electricity industry in other countries, this report proposes a set of alternative policies on the horizontal and vertical structures of the electricity industry of Korea, wholesale market rules, vesting contracts, incentive regulation of bottleneck facilities, and the governance of public enterprises in the electricity industry.

Summary

Policy Study KOR Market Definition and System Analysis of Broadcasting Industry

This study defines relevant markets with its target on main economic transactions that exist in the broadcasting industry. Based on the definitions, the study analyzes the adequacy of existing systems and the necessity of a new system.

Foremost, the study defines markets relating to transactions of broadcast channels and access to viewers between terrestrial broadcasters and platform service providers. The result suggests a high possibility that terrestrial broadcasters may hold a unilateral monopoly in the ongoing negotiation over the retransmission fee of digital terrestrial channels. In this context, to limit the market dominance of terrestrial broadcasters and encourage fair competition among platform service providers, this study presents policy measures to adopt the must-offer system-which designates main terrestrial channels as mandatory channels-and of making it mandatory to use the same methodology in calculating the retransmission fee. Then, the study further suggests a etransmission fee-calculating method that could maximize fair and various social welfare functions for both terrestrial broadcasters and platform service providers, along with detailed explanation of calculation process.

Thereafter, the study defines markets relating to each paid broadcasting service by applying the test method of critical sales loss to the results of survey to the paid service subscribers. The result confirms the existence of a meaningful competitive elationship-in terms of the Competition Law-among all paid broadcasting services included in this study, or at least analog cable broadcasting, digital cable broadcasting, and real time IPTV service. This indicates that current regulations which are being applied to cable TV, satellite broadcasting, and IPTV are actually discriminative. Based on these analysis results, this study suggests the improvement direction for regulations differently applied to different platform service providers, such as the contents equal access rule and the market-share limitation regulations on platform service providers stipulated in the Internet Multimedia Broadcasting Law and the Broadcasting Law.

Summary

Policy Study KOR A Study on Network Neutrality Regulation in Information and Telecommunication Industry

Until now, information on the Internet has been delivered in a “first-in-first-out” manner, where the router sends the information in their arrival order regardless of sender or recipient. But, with the introduction of new services and its spread which need an extensive use of bandwidth or whose quality is highly responsive to the delayed trans-mission of information, there is a growing argument that the transmission structure of Internet should be transformed. This argument includes no more first-in-first-out, the network division into premium and basic type, the differentiated traffic intensity depending on the type of content/application or sender/recipient, and additional charge on content providers (CP) who use the quality-guaranteed premium network. This argument of traffic prioritization has been already realized in the U.S., Europe and Korea by way of blocking the transmission of content/application from certain CPs or degrading the transmission quality of P2Ptraffic.

Recognizing the current status, this study conducts a detailed analysis of the preceding issues addressed regarding traffic prioritization and approval of additional charge on CPs and suggests whether the regulation on net-work neutrality should be adopted and what the regulations include. First, the study looks over critical issues related to network neutrality regulation and then examines theoretical and realistic feasibility of arguments that have been raised until now. Then, the study intends to show that the approval of traffic prioritization is not an inevitable choice to provide ISP with investment incentives or to secure the transmission quality of traffic which is highly responsive to delayed trans-mission. But, when considering that traffic prioritization is a cost-effective method to secure the transmission quality, it needs to be applied in an active way. This study also argues that in the case of Korea, an ISP vertically integrated with a CP has incentives to discriminate rival CPs and traffic prioritization can be used as a tool for the discrimination. Lastly, there is a possibility that the approval of traffic prioritization and additional charge is likely to constrain innovative activities of small and newly established CPs that are experiencing financial constraints. However, as long as the use of premium net-work is not overly charged and the quality of basic network remains adequate, it is thought that adverse effects are unlikely to be serious.

Based on this result, the study concludes that traffic prioritization and additional charge should be approved but, at the same time, it is also necessary to properly implement adjusted regulations on network neutrality as well as policies to complement the regulations in order to protect fair competition and innovative activities in cyberspace. The regulations this study finds appropriate include: ①streamlining systems to constrain anti-competitive behaviors of an ISP vertically integrated with a CP, ②adopting a regulation that could restrict excessive charge on the use of premium network, and ③preparing a regulation to guarantee the minimum transmission quality of traffic on basic net-work. Also, this study suggests the adoption of a system that encourages competition and reduces the switching cost of business as a policy to complement the network neutrality regulation and enhance the innovation and growth of the market for Internet service.

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