TY  - JOUR
AU  - Mansur,Erin T.
TI  - Measuring Welfare in Restructured Electricity Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13509
PY  - 2007
Y2  - October 2007
UR  - http://www.nber.org/papers/w13509
L1  - http://www.nber.org/papers/w13509.pdf
N1  - Author contact info:
Erin T. Mansur
Dartmouth College
6106 Rockefeller Hall
Hanover, NH 03755
Tel: (603) 646-2531
Fax: (603) 646-2122
E-Mail: erin.mansur@dartmouth.edu
AB  - 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.
ER  -