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This thesis consists of three independent research papers. Using both applied econometric methods and theoretical models, they study the functioning of electricity markets, including those for green certificates, and auction markets in the presence of policy and market imperfections.

The first paper empirically examines the effect of regulatory uncertainty in quota-based green certificate markets, a market-based subsidy scheme for renewable energy. This policy has received criticism for exposing investors to high risk as the subsidy is determined by the market price of certificates. Using data from the Swedish-Norwegian market and a two-step econometric procedure, this paper shows that regulatory interventions in green certificate markets further exacerbate price risk by resulting in periods of higher price volatility, which in turn defers wind power investments.

The second paper theoretically analyses strategic behaviour in the electricity market when incorporating the effect of a coexisting quota-based green certificate market. Using a two-stage duopoly model, I find that when the subsidised technology has a higher expected marginal cost than the conventional technology, the policy can improve competition and efficiency in the electricity market. Conversely, if producers have the same expected marginal cost, the advantage the policy creates enables the subsidised producer to bid higher for a given cost. This is harmful to competition and results in high consumer prices of electricity.

The third paper theoretically analyses search frictions in decentralised markets where sellers post sealed-bid auctions to sell a homogeneous good. The model incorporates search by assuming that buyers can locate only one of two sellers in the market unless they engage in costly search before the auctions start. I find that this leads to price dispersion because only buyers with valuations above a certain threshold are willing to search and attend the less visible auction. A simulation study of the model predictions also shows that search costs lead to ex post welfare losses by reducing aggregate consumer surplus and efficiency.