Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency
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,
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,
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Fabrizio, Kira R.
Rose, Nancy L.
Wolfram, Catherine D.