Measuring welfare in restructured electricity markets
By: Erin T. Mansur.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series -- no. 13509.; Working paper series (National Bureau of Economic Research) -- working paper no. 13509.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 56
Subjects: Electricity -- Prices -- United States -- Econometric models; Energy industries -- Government policy
Description: 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.
Notes: "October 2007"

Includes bibliographical references (p. 41-44).

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