American Economic Review Vol. 97 No. 4 2007

Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency

Kira R. Fabrizio¹; Nancy L. Rose²; Catherine Wolfram³

¹ Goizueta Business School, Emory University, 1300 Clifton Road NE, Atlanta, GA 30322. · ² Department of Economics, Massachusetts Institute of Technology, E52-280b, 50 Memorial Drive, Cambridge MA 02142-1347. · ³ Haas School of Business, University of California, Berkeley, Berkeley, CA 94720-1900.

Abstract

While neoclassical models assume static cost-minimization by firms, agency models suggest that firms may not minimize costs in less-competitive or regulated environments. We test this using a transition from cost-of-service regulation to market-oriented environments for many US electric generating plants. Our estimates of input demand suggest that publicly owned plants, whose owners were largely insulated from these reforms, experienced the smallest efficiency gains, while investor-owned plants in states that restructured their wholesale electricity markets improved the most. The results suggest modest medium-term efficiency benefits from replacing regulated monopoly with a market-based industry structure.

DOI

10.1257/aer.97.4.1250

Volume

97

Issue

4

Pages

1250-1277

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

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