My colleague Adrian Moore and I argue in this policy analysis, published by the Institute for Research on the Economics of Taxation, that the administration’s proposal and the House and Senate versions of the energy bill retain too much government manipulation of markets, and fail to recognize the range of institutional approaches available to address energy challenges.
As I argue in this presentation delivered last week at the Ronald Coase Institute Workshop on Institutional Analysis, the bifurcated PX/ISO pool trading structure created a myriad of incentives for both buyers and sellers to behave strategically. Furthermore, because I was making a methodological point to the students, better institutional analysis could have lessened or prevented the ensuing losses and disruptions. I say could have because the political process could have meant that decision-makers would not have found it in their interests to listen to a sound institutional analysis, even if presented with it before the fact. Bottom line: institutions matter, and analyzing them and the incentives they create is important for good policy and good market design.