Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency

Kira Markiewicz, Nancy Rose and Catherine Wolfram

No 11001, NBER Working Papers from National Bureau of Economic Research, Inc

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 U.S. 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-codes: D24 L11 L43 L51 L94 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-com, nep-ene and nep-reg
Note: IO PR EEE
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Published as Fabrizio, Kira, Nancy Rose and Catherine Wolfram. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency.” American Economic Review 97 (September 2007): 1250-1277.

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