Nancy L. Rose

Does Competition Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency

While neoclassical models assume static cost-minimization by firms, agency models suggest that firms may not minimize costs in less-competitive or regulated environments. We test this using a transition from cost-of-service regulation to market-oriented environments for many U.S. electric generating plants. Our estimates of input demand suggest that publicly-owned plants, whose owners were largely insulated from these reforms, experienced the smallest efficiency gains, while investor-owned plants in states that restructured their wholesale electricity markets improved the most. The results suggest modest medium-term efficiency benefits from replacing regulated monopoly with a market-based industry structure.

The effects of economic regulation

Publisher Summary This chapter discusses alternative approaches to measure the effects of economic regulation and reviews the empirical literature employing these approaches. Economic regulation refers to both the direct legislation and administrative regulation of prices and entry into specific industries or markets. It follows conventional treatment in distinguishing economic regulation from a host of other forms of government intervention in markets, including the social regulation of environmental, health and safety practices, antitrust policy, and tax and tariff policies. The measurement issues that discusses arise in the empirical analysis of all types of government regulation; therefore, it have structured the methodological discussion so that it has broad applicability. While the present study is by no means an exhaustive survey of the literature, it includes numerous examples of the use of different types of data and measurement techniques. These are selected to cover a range of industries and time periods sufficient to give the reader a good feeling for what is known, not known, or in dispute. The chapter examines the way alternative theoretical frameworks and empirical methodologies have been applied to study the effects of price and entry regulation on each of: prices, costs, technological change, product quality, and the distribution of income and rents.

Profitability and Product Quality: Economic Determinants of Airline Safety Performance

This study investigates product safety choices in the airline industry, with particular attention to the role of financial conditions. The analysis uses data on 35 large scheduled passenger airlines over the 1957-86 period to estimate the effect of profitability and other aspects of financial health on accident and incident rates. The results indicate that lower profitability is correlated with higher accident and incident rates, particularly for smaller carriers. These findings support a broad class of theoretical models that suggest links between financial conditions and product quality and may have significant implications for the allocation of safety inspection and enforcement resources.

The Effects of Technological Change, Experience, and Environmental Regulation on the Construction Cost of Coal-Burning Generating Units

This paper provides an empirical analysis of the technological, regulatory and organizational factors that have influenced the costs of building coal-burning steam-electric generating units over the past twenty year. We obtain empirical estimates of economies of scale in construction costs, learning effects associated with utilities and architect-engineers, the costs of environmental regulation, patterns of construction productivity, and cost differences between generating technologies. The analysis is based on a sample of over 400 generating units placed in operation between 1960 and 1980. Information on generating unit availability is integrated with the construction cost evidence to suggest that the abandonment of supercritical technology in the early 1980s is likely to be a consequence of poor operating performance as well as sharply reduced demand expectations rather than a consequence of high construction costs for this technology at large scale. 29 references, 1 figure, 10 tables.

Regulatory Constraints on CEO Compensation

No abstract is available for this paper.

Regulating Executive Pay: Using the Tax Code to Influence Chief Executive Officer Compensation

This study explores corporate responses to 1993 legislation that capped the corporate tax deductibility of top management compensation not qualified as “performance‐based.” Our analysis suggests that the cap may have created a focal point for salary compensation but had little effect on total compensation levels or growth rates at firms likely to be affected by the limit. There is little evidence that the policy significantly increased the performance sensitivity of chief executive officer (CEO) pay at affected firms. We conclude that corporate pay decisions have been relatively insulated from this policy intervention.

The Impact of Bankruptcy on Airline Service Levels

The current financial crisis in the commercial airline industry has engendered an active debate over appropriate governmental policies. Proponents of government support, instrumental in legislating a

Competition and Price Dispersion in the U.S. Airline Industry

5 billion cash transfer and

Labor rent-sharing and regulation : evidence from the trucking industry

10 billion loan guarantee fund for U.S. carriers following September 11, 2001, point to the critical role that airlines play in the U.S. economy and the devastating effects airline failures could have on air service. Opponents argue that most airlines continue to operate through bankruptcy resolution and that even a complete shutdown of a major carrier, which rarely occurs, would stimulate expansion by other airlines to replace its abandoned flights. This debate highlights the need to understand the causal effect of airline financial distress on airline operations, distinct from correlations that may exist as a result of adverse demand or cost shocks that lead to both service declines and financial distress. We focus on airline Chapter 11 bankruptcy filings, an extreme measure of financial distress. We use data from 1984 through 2001 to evaluate the impact of major bankruptcies on the level of flights and destinations served at U.S. airports. Our results suggest that bankruptcy induces modest declines in service levels, particularly at midsize airports. This raises the question of whether such declines are socially inefficient. Restrictions imposed by the bankruptcy court judge or the creditors of an airline operating under Chapter 11 may affect total industry output or capacity offered if other carriers cannot rapidly replace the production of the constrained firm (i.e., if firms are not homogeneous and entry is not costless). With heterogeneous firms, one firm may be uniquely positioned to supply a flight, and its decision not to do so may lead to a reduction in total service. This is particularly likely in network industries, such as airlines, where there are strong production complementarities across routes. It is also possible, however, that pre-bankruptcy service levels were inefficiently high. The bankrupt carrier may have overprovided service, perhaps in an attempt to build market share, or flight-frequency competition among carriers may have led to excessive flights. In these cases, the flight reduction associated with bankruptcy may cause a movement toward the socially optimal level of service. Our work takes a first step toward resolving this issue, by determining the magnitude of bankruptcy effects on aggregate air service. The results suggest the need for further research to assess its possible welfare implications.