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Capture or contract? The early years of electric utility regulation

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  • Thomas Lyon

    ()

  • Nathan Wilson

    ()

Abstract

Jarrell (J Law Econ 21:269–295, 1978 ) found that electricity prices fell more slowly in states that adopted state regulation before 1917, suggesting that regulators were “captured” by the interests of the regulated electric utilities. An alternative explanation is that state regulation more credibly protected specialized utility assets from regulatory opportunism than did the municipal franchise contracting that preceded it. We test this alternative hypothesis using a panel of data from the U.S. Electrical Censuses of 1902–1937. We find that the shift from municipal franchise contracting to state regulation was associated with a substantial decrease in investment propensity, an outcome supporting the capture hypothesis. Copyright Springer Science+Business Media, LLC 2012

Suggested Citation

  • 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.
  • Handle: RePEc:kap:regeco:v:42:y:2012:i:3:p:225-241
    DOI: 10.1007/s11149-012-9200-9
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    References listed on IDEAS

    as
    1. Priest, George L, 1993. "The Origins of Utility Regulation and the "Theories of Regulation" Debate," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 289-323, April.
    2. Jarrell, Gregg A, 1978. "The Demand for State Regulation of the Electric Utility Industry," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 269-295, October.
    3. Peltzman, Sam, 1993. "George Stigler's Contribution to the Economic Analysis of Regulation," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 818-832, October.
    4. Neufeld, John L., 2008. "Corruption, Quasi-Rents, and the Regulation of Electric Utilities," The Journal of Economic History, Cambridge University Press, vol. 68(4), pages 1059-1097, December.
    5. Jarrell, Gregg A., 1979. "Pro-producer regulation and accounting for assets : The case of electric utilities," Journal of Accounting and Economics, Elsevier, vol. 1(2), pages 93-116, August.
    6. Werner Troesken, 2006. "Regime Change and Corruption. A History of Public Utility Regulation," NBER Chapters, in: Corruption and Reform: Lessons from America's Economic History, pages 259-282, National Bureau of Economic Research, Inc.
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    11. Crocker, Keith J & Masten, Scott E, 1996. "Regulation and Administered Contracts Revisited: Lessons from Transaction-Cost Economics for Public Utility Regulation," Journal of Regulatory Economics, Springer, vol. 9(1), pages 5-39, January.
    12. Hausman, William J. & Neufeld, John L., 2002. "The Market for Capital and the Origins of State Regulation of Electric Utilities in the United States," The Journal of Economic History, Cambridge University Press, vol. 62(4), pages 1050-1073, December.
    13. Thomas P. Lyon & John W. Mayo, 2005. "Regulatory Opportunism and Investment Behavior: Evidence from the U.S. Electric Utility Industry," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 628-644, Autumn.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Continuing debate over the economic origins of electric utility regulation
      by Michael Giberson in Knowledge Problem on 2013-09-24 09:49:37

    More about this item

    Keywords

    Regulatory capture; Transaction cost economics; Electric utilities; K2; L5; L9; N4; N7;

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
    • N4 - Economic History - - Government, War, Law, International Relations, and Regulation
    • N7 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services

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