Working Paper: NBER ID: w11001
Authors: Kira Markiewicz; Nancy L. Rose; Catherine Wolfram
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.
Keywords: electricity markets; regulatory restructuring; technical efficiency; cost minimization
JEL Codes: L11; L43; L51; L94; D24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technical efficiency gains (D61) | Improved operational efficiency (D61) |
| Regulatory restructuring (L51) | Technical efficiency gains (D61) |
| Investor-owned plants in restructured states (L94) | Reduced labor and nonfuel expenses (L71) |