Gains from trade under uncertainty

The case of electric power markets

Hendrik Bessembinder, Michael L. Lemmon

Research output: Contribution to journalArticle

10 Citations (Scopus)

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 2006
Externally publishedYes

Fingerprint

Uncertainty
Real-time
Diversification
Economics
Estimate
Trade
Market
Demand
Gains from trade
Electric power market
Efficiency gains
Policy
Economic efficiency
Power market
Retail prices

ASJC Scopus subject areas

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

Cite this

Gains from trade under uncertainty : The case of electric power markets. / Bessembinder, Hendrik; Lemmon, Michael L.

In: Journal of Business, Vol. 79, No. 4, 07.2006, p. 1755-1782.

Research output: Contribution to journalArticle

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