Measuring Welfare in Restructured Electricity Markets
Restructuring electricity markets has enabled wholesalers to exercise market power. Using a common method of measuring competitive behavior in these markets, several studies have found substantial inefficiencies. This method overstates actual welfare loss by ignoring production constraints that result in non-convex costs. I develop an alternative method that accounts for these constraints and apply it to the Pennsylvania, New Jersey, and Maryland market. For the summer following restructuring, the common method implies that market imperfections resulted in considerable welfare loss, with actual production costs exceeding the competitive model's estimates by 13 to 21 percent. In contrast, my method finds that actual costs were only between three and eight percent above the competitive levels. In particular, it is the fringe firms whose costs increase, while strategic firms reduce production and costs.
|Date of creation:||Oct 2007|
|Publication status:||published as Erin T. Mansur, 2008. "Measuring Welfare in Restructured Electricity Markets," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 369-386, 02.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- James B. Bushnell & Erin T. Mansur & Celeste Saravia, 2007.
"Vertical Arrangements, Market Structure, and Competition An Analysis of Restructured U.S. Electricity Markets,"
NBER Working Papers
13507, National Bureau of Economic Research, Inc.
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- repec:reg:rpubli:73 is not listed on IDEAS
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