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Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency

  • Kira Markiewicz
  • Nancy L. Rose
  • Catherine Wolfram

While neoclassical models assume static cost-minimization by firms, agency models suggest that firms may not minimize costs in less-competitive or regulated environments. We test this using a transition from cost-of-service regulation to market-oriented environments for many U.S. electric generating plants. Our estimates of input demand suggest that publicly-owned plants, whose owners were largely insulated from these reforms, experienced the smallest efficiency gains, while investor-owned plants in states that restructured their wholesale electricity markets improved the most. The results suggest modest medium-term efficiency benefits from replacing regulated monopoly with a market-based industry structure.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11001.

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Date of creation: Dec 2004
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Publication status: published as Fabrizio, Kira, Nancy Rose and Catherine Wolfram. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency.” American Economic Review 97 (September 2007): 1250-1277.
Handle: RePEc:nbr:nberwo:11001
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