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A Look Upstream: Electricity Market Restructuring, Risk, Procurement Contracts and Efficiency

Author

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  • Corrado Di Maria

    (School of Economics, University of East Anglia)

  • Ian Lange

    (Division of Economics and Business, Colorado School of Mines)

  • Emiliya Lazarova

    (School of Economics, University of East Anglia)

Abstract

This paper analyzes theoretically and empirically how upstream markets are affected by deregulation downstream. Deregulation tends to increase the level of uncertainty in the upstream market. Our theoretical analysis predicts that deregulated firms respond to this increase in uncertainty by writing more rigid contracts with their suppliers. Using the restructuring of the electricity market in the U.S. as our case study, we find support for our theoretical predictions. Furthermore, we investigate the impact this change in procurement contracts has on efficiency. Focusing on coal mines, we find that those selling coal to plants in restructured markets are significantly more productive than their counterparts working with regulated plants. On the other hand, we also find that transaction costs may have increased as a consequence of deregulation.

Suggested Citation

  • Corrado Di Maria & Ian Lange & Emiliya Lazarova, 2014. "A Look Upstream: Electricity Market Restructuring, Risk, Procurement Contracts and Efficiency," Working Papers 2014-12, Colorado School of Mines, Division of Economics and Business.
    • Handle: RePEc:mns:wpaper:wp201412
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    Cited by:

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    2. Tarufelli, Brittany L., 2021. "Strategic Behavior and Market Design in Regional Climate Policy," SocArXiv x96ge, Center for Open Science.

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    More about this item

    Keywords

    Energy Policy; Electricity Market Restructuring; Deregulation; Procurement Contracts; Risk; Efficiency;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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