Gains from trade under uncertainty: The case of electric power markets

Hendrik Bessembinder, Michael L. Lemmon

Research output: Contribution to journalArticle

11 Scopus citations

Abstract

This article refocuses attention on the potential efficiency gains from competitive wholesale power trading, which allows the diversification of demand risk. The greatest efficiency gains obtain when power demand is least correlated across markets and when there is substantial cross-sectional variation in expected demand. Real-time power trading can reduce retail prices by conservative estimates of 3%-4% on average in the United States, and forward and real-time trading can reduce prices by a combined 6%-10% or more. Economic efficiency would be best served by policy ensuring that deregulated power markets are indeed competitive, rather than by renewed regulation.

Original languageEnglish (US)
Pages (from-to)1755-1782
Number of pages28
JournalJournal of Business
Volume79
Issue number4
DOIs
StatePublished - Jul 1 2006
Externally publishedYes

ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

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