A Look Upstream: Electricity Market Restructuring, Risk, Procurement Contracts and Efficiency

Arbeitspapier

This paper analyzes theoretically and empirically how upstream markets are affected by deregulation downstream. Deregulation tends to increase the level of uncertainty in the upstream market. Our theoretical analysis predicts that deregulated firms respond to this increase in uncertainty by writing more rigid contracts with their suppliers. Using the restructuring of the electricity market in the U.S. as our case study, we find support for our theoretical predictions. Furthermore, we investigate the impact this change in procurement contracts has on efficiency. Focusing on coal mines, we find that those selling coal to plants in restructured markets are significantly more productive than their counterparts working with regulated plants. On the other hand, we also find that transaction costs may have increased as a consequence of deregulation.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5124

Classification and Topics

• Classification: Wirtschaft ; Transactional Relationships; Contracts and Reputation; Networks ; Economics of Regulation ; Nonrenewable Resources and Conservation: Demand and Supply; Prices ; Energy: Government Policy
• Subject: energy policy ; electricity market restructuring ; deregulation ; procurement contracts ; risk ; efficiency

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Di Maria, Corrado ; Lange, Ian A. ; Lazarova, Emiliya
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/107306
• Last update: 10.03.2025, 11:42 AM CET