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Redistribution through Efficiency: Theory and Evidence from Three Electricity Markets

Author

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  • Liski, Matti
  • Vehviläinen, Iivo

Abstract

Using micro-data on over 160 million bids to buy and sell from three major electricity markets, we study efficiency improvements resulting from technologies such as storage. Consumer benefits arise not from stabilized prices but from changes in general price levels. To unpack the findings, we develop a set of price-theory results, demonstrating that the convexity of market excess demand, derived from the bids, serves as a novel measure that strongly predicts consumer benefits across all markets. This analysis highlights that even small allocative improvements can lead to significant redistributions of surplus, ultimately benefitting consumers.

Suggested Citation

  • Liski, Matti & Vehviläinen, Iivo, 2024. "Redistribution through Efficiency: Theory and Evidence from Three Electricity Markets," CEPR Discussion Papers 19818, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:19818
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    File URL: https://cepr.org/publications/DP19818
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    Keywords

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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • F10 - International Economics - - Trade - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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