Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency

63 Pages Posted: 20 Jan 2005 Last revised: 23 Jan 2022

See all articles by Kira Markiewicz

Kira Markiewicz

affiliation not provided to SSRN

Nancy L. Rose

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Catherine Wolfram

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

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Date Written: December 2004

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.

Suggested Citation

Markiewicz, Kira and Rose, Nancy L. and Wolfram, Catherine, Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency (December 2004). NBER Working Paper No. w11001, Available at SSRN: https://ssrn.com/abstract=637498

Kira Markiewicz

affiliation not provided to SSRN

No Address Available

Nancy L. Rose (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Catherine Wolfram

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States