Imperfect Markets versus Imperfect Regulation in US Electricity Generation
AbstractThis paper evaluates changes in electricity generation costs caused by the introduction of market mechanisms to determine production in the United States. I use the staggered transition to markets from 1999 to 2012 to estimate the causal impact of liberalization using a differences-in-difference design on a comprehensive hourly panel of electricity demand, generators' costs, capacities, and output. I find that markets reduce production costs by 5 percent by reallocating production: gains from trade across service areas increase by 55 percent based on a 25 percent increase in traded electricity, and costs from using uneconomical units fall 16 percent.
CitationCicala, Steve. 2022. "Imperfect Markets versus Imperfect Regulation in US Electricity Generation." American Economic Review, 112 (2): 409-41. DOI: 10.1257/aer.20172034
- L51 Economics of Regulation
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- Q41 Energy: Demand and Supply; Prices
- Q48 Energy: Government Policy