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Economic Impacts of Investment in the Electricity Industry: A CGE Comparison of Regulated and Free Markets

Davood Manzoor, Iman Haqiqi and Mohammad Aghababaei

MPRA Paper from University Library of Munich, Germany

Abstract: Benefits of investment in the electricity industry can transmit to other activities through several channels. This is mainly through “the price channel” in free markets and “the capital return channel” in fixed-price regulated markets. In this study, we apply a comparative static analysis of the economic impacts of investment in the electricity industry in both controlled and free-market environments. We apply a CGE model which is calibrated using the 2001 Energy Micro Consistent matrix (MCM) of the Iranian Ministry of Energy. The model assumes a small open economy with imperfect capital and labor mobility between sectors. We found that regulated markets are less efficient than free markets. While under fixed electricity prices, one unit of investment increases household welfare by 0.16%, under a free market regime household welfare increases more than three times (about 0.52%).

Keywords: electricity; capital return; investment; labor; regulated markets; computable general equilibrium (search for similar items in EconPapers)
JEL-codes: C68 D58 E22 Q40 (search for similar items in EconPapers)
Date: 2013
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Published in Quarterly Energy Economics Review 35.9(2013): pp. 47-74

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