Capacity Choices in Liberalized Electricity Markets
We develop a theoretical model of long-run investment decisions on capacity in the context of a liberalized electricity market. The sector's idiosyncrasies such as the uncertainty surrounding future supply and demand, as well as technological constraints, are explicitly modelled. The model is sufficiently flexible to describe the situation in different systems. We derive the level of capacity that maximizes social welfare, and compare it to a decentralized outcome. We show that in the absence of any regulation, private investment decisions on capacity unambiguously lead to a socially sub-optimal outcome, and we illustrate these results using simulations.
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Veronika Grimm & Gregor Zoettl, 2006. "Capacity Choice under Uncertainty: The Impact of Market Structure," Working Paper Series in Economics 23, University of Cologne, Department of Economics.
- Jean J. Gabszewicz & Sougata Poddar, 1997.
"Demand fluctuations and capacity utilization under duopoly,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 10(1), pages 131-146.
- GABSZEWICZ, Jean J. & PODDAR , Sougata, 1995. "Demand Fluctuations and Capacity Utilization under Duopoly," CORE Discussion Papers 1995051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Gabszewicz, J.J. & Poddar, S., "undated". "Demand fluctuations and capacity utilization under duopoly," CORE Discussion Papers RP 1269, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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