Title

Should Regulators be Appointed? Evidence from a Study of Regulated Electric Utilites

Date of Award

12-1-1998

Document Type

Thesis

Degree Name

Master of Arts (MA)

Department

Economics & Finance

Abstract

Capture and Hostility hypotheses are tested in this thesis. The Capture Theory states that state regulatory commissions are "captured" by the firms they are regulating. The Hostility theory states that elected commissions are "hostile" to the regulated firms in the eyes of the financial community, leading to higher prices and restrictions in access to capital. The capture theory predicts higher prices to consumers under the regulatory authority of appointed commissions. The hostility theory predicts lower prices to consumers under appointed comissions.

Inflation that was prevalent in the economy twenty years ago may have caused problems for empirical analysis. This paper shows evidence that there was "noise" in the data in the late 1970s and the early 1980s and was somewhat subdued in the 1990s data. The "noise" was probably caused by microeconomic inefficiencies that occur when unexpected inflation affects microeconomic decision making. The noise in the data leads to poor economic modeling in the 1980 data and better modeling in the 1992 data.

Economists should resume the study of commission structure. The issue was never fully resolved in previous work, but is still quite important to consumers. The prices consumers pay for electricity is heavily affected by the political structure between the commissions and the firms they regulate.

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