Regulatory Opportunism and Investment Behavior: Evidence from the U.S. Electric Utility Industry
AbstractLarge sunk costs and incomplete regulatory contracts in public utilities create the possibility of opportunistic behavior by either regulators or regulated firms. We present an empirical methodology for identifying opportunism within a regulated setting, and apply it to the large-scale cost disallowances levied by state regulators on electric utilities during the 1980s. Examining the investment propensity of all firms---both those that faced cost disallowances and those that did not---within particular regulatory jurisdictions, we find little evidence that cost disallowances were opportunistic. Instead, regulators appear to have been largely driven by the desire to punish specific poorly managed utilities.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 36 (2005)
Issue (Month): 3 (Autumn)
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Web page: http://www.rje.org
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- Roland Strausz, 2009.
"Regulatory Risk under Optimal Incentive Regulation,"
SFB 649 Discussion Papers
SFB649DP2009-006, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Roland Strausz, 2009. "Regulatory Risk under Optimal Incentive Regulation," CESifo Working Paper Series 2638, CESifo Group Munich.
- Thomas Lyon & Nathan Wilson, 2012. "Capture or contract? The early years of electric utility regulation," Journal of Regulatory Economics, Springer, vol. 42(3), pages 225-241, December.
- Carlos Pérez Montes, 2011. "Optimal capital structure and Regulatory Control," Banco de Espaï¿½a Working Papers 1128, Banco de Espa�a.
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