Imperfect Markets versus Imperfect Regulation in US Electricity Generation
American Economic Review · 2022 · Volume 112 · Issue 2
Abstract
This paper evaluates changes in electricity generation costs caused by the introduction of market mechanisms to determine production in the United States. I use the staggered transition to markets from 1999 to 2012 to estimate the causal impact of liberalization using a differences-in-difference design on a comprehensive hourly panel of electricity demand, generators' costs, capacities, and output. I find that markets reduce production costs by 5 percent by reallocating production: gains from trade across service areas increase by 55 percent based on a 25 percent increase in traded electricity, and costs from using uneconomical units fall 16 percent.
Keywords
Economics of Regulation, Electric Utilities, Industry Studies: Utilities and Transportation: Government Policy, Energy: Demand and Supply, Prices, Energy: Government Policy
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