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Power Flows: Transmission Lines, Allocative Efficiency, and Corporate Profits

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  • Catherine Hausman

Abstract

Accelerated investment in electricity transmission could reduce total costs and enhance renewable integration. I document static allocative inefficiencies induced by incomplete market integration in 2 major US markets; these have risen over time and totaled $2 billion in 2022. I also argue that estimating firm-level impacts is important, as incumbents may have the power to block new lines and other reforms. I show that 4 firms would have experienced a collective $1.3 billion drop in net revenues in 2022 had the market been integrated, all there are reports of some of these firms blocking transmission projects.

Suggested Citation

  • Catherine Hausman, 2025. "Power Flows: Transmission Lines, Allocative Efficiency, and Corporate Profits," American Economic Review, American Economic Association, vol. 115(8), pages 2574-2615, August.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:8:p:2574-2615
    DOI: 10.1257/aer.20240276
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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