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A test of vertical economies for non-vertically integrated firms: The case of rural electric cooperatives

  • Greer, Monica L.
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    This paper seeks to evaluate unrealized economies of vertical integration for rural electric cooperatives. Given the well-established network economies that are inherent in the generation, transmission, and distribution of electricity, the coops long-standing choice of market structure is questionable (especially if their strategy is welfare maximization). Organized as either generation-and-transmission or distribution-only, the traditional measures of vertical economies will not work. Thus, I have devised an alternative method by which to measure such economies and find that, on average, cost savings in excess of 39% could have been realized had the coops adopted a vertically integrated structure.

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    File URL: http://www.sciencedirect.com/science/article/B6V7G-4KW5WG8-1/1/cccead1feced601ebc6d4b088511b5ad
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    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 30 (2008)
    Issue (Month): 3 (May)
    Pages: 679-687

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    Handle: RePEc:eee:eneeco:v:30:y:2008:i:3:p:679-687
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    1. Greer, Monica Lynne, 2003. "Can rural electric cooperatives survive in a restructured US electric market? An empirical analysis," Energy Economics, Elsevier, vol. 25(5), pages 487-508, September.
    2. Mark J. Roberts, 1986. "Economies of Density and Size in the Production and Delivery of Electric Power," Land Economics, University of Wisconsin Press, vol. 62(4), pages 378-387.
    3. Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-23, May.
    4. Gilsdorf, Keith, 1994. "Vertical integration efficiencies and electric utilities: A cost complementarity perspective," The Quarterly Review of Economics and Finance, Elsevier, vol. 34(3), pages 261-282.
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