American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency
American Economic Review
vol. 97,
no. 4, September 2007
(pp. 1250–1277)
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 marketoriented 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. (JEL D24, L11 , L51, L94, L98)Citation
Fabrizio, Kira, R., Nancy L. Rose, and Catherine D. Wolfram. 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency." American Economic Review, 97 (4): 1250–1277. DOI: 10.1257/aer.97.4.1250Additional Materials
JEL Classification
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L51 Economics of Regulation
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy