Has Wholesale Power Competition Increased Efficiency at Generating Plants?

Michael Giberson

A forthcoming American Economic Review article was noted online by US News & World Report:

Over the past two decades, huge swaths of the economy have been deregulated, from banking to electricity to airlines. But has competition increased efficiency? In a paper forthcoming in the American Economic Review, a group of academics from Emory University’s Goizueta School of Business, MIT, and the University of California’s Haas School of Business say yes. In Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency, the researchers examine production at fossil-fuel generating plants from 1981 to 1999, before and after deregulation. Publicly owned plants, which were largely sheltered from deregulation, experienced the smallest efficiency gains. Investor-owned plants in states with restructured markets improved the most. Even in a stodgy old industry like electricity, markets do seem to work their magic.

In the forthcoming article, authors Fabrizio, Rose and Wolfram write: “This study provides the first substantial analysis of early generation efficiency gains from electricity restructuring. As such, it is of direct policy relevance to states contemplating the future of their electricity restructuring programs, and contributes to the broad economic debate on the role of competition in the economy.”

The paper is currently available online from co-author Catherine Wolfram’s website. (HT to Will Simpson.)

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