Determining whether to introduce competition into regulated industries is a key issue in industrial organization. While competition assures lower expected rates, regulation delivers higher ex ante expected profits which foster in turn cost reducing investments. Thus, deregulation is more likely where the rents left by regulation are lower and the reformer’s dynamic efficiency concerns are weaker. This prediction is consistent with American states electricity market data. In particular, during the 1990s, restructuring was enacted where regulators were more pro consumers, because elected in spite of being appointed, and the generation was historically more expensive. Also, taking into full consideration the endogeneity of regulatory reforms to the existing cost structure suggests that the medium-term efficiency benefits of restructuring are stronger than those documented by previous analyses.

This seminar has been jointly organized by FEEM and IEFE, Bocconi University.