When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation
American Economic Review
vol. 105,
no. 1, January 2015
(pp. 411-44)
Abstract
This paper evaluates changes in fuel procurement practices by coal and gas-fired power plants in the United States following state-level legislation that ended cost-of-service regulation of electricity generation. I find that deregulated plants substantially reduce the price paid for coal (but not gas) and tend to employ less capital-intensive sulfur abatement techniques relative to matched plants that were not subject to any regulatory change. Deregulation also led to a shift toward more productive coal mines. I show how these results lend support to theories of asymmetric information, capital bias, and regulatory capture as important sources of regulatory distortion. (JEL L51, L71, L94, L98, Q35, Q41, Q48)Citation
Cicala, Steve. 2015. "When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation." American Economic Review, 105 (1): 411-44. DOI: 10.1257/aer.20131377Additional Materials
JEL Classification
- L51 Economics of Regulation
- L71 Mining, Extraction, and Refining: Hydrocarbon Fuels
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- Q35 Hydrocarbon Resources
- Q41 Energy: Demand and Supply; Prices
- Q48 Energy: Government Policy