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

49 Pages Posted: 14 Jan 2015

See all articles by Corrado Di Maria

Corrado Di Maria

University of East Anglia

Ian Lange

University of Stirling - Department of Economics

Emiliya A. Lazarova

Queen's University Belfast

Date Written: December 29, 2014

Abstract

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.

Keywords: energy policy, electricity market restructuring, deregulation, procurement contracts, risk, efficiency

JEL Classification: L14, L51, Q31, Q48

Suggested Citation

Di Maria, Corrado and Lange, Ian and Lazarova, Emiliya A., A Look Upstream: Electricity Market Restructuring, Risk, Procurement Contracts and Efficiency (December 29, 2014). CESifo Working Paper Series No. 5124, Available at SSRN: https://ssrn.com/abstract=2549014 or http://dx.doi.org/10.2139/ssrn.2549014

Corrado Di Maria (Contact Author)

University of East Anglia ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom
441603592866 (Phone)

Ian Lange

University of Stirling - Department of Economics ( email )

Stirling, FK9 4LA
United Kingdom

Emiliya A. Lazarova

Queen's University Belfast ( email )

25 University Square
Belfast, BT7 1NN
Ireland

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