Two Essays on Electricity Markets: Entry Into Hydroelectric Generation Industry and the Political Cycle of Regulated Prices

The second chapter deals with the problem of the political cycle in regulated industries. It follows Paiva (1995) in combining elements of both the political cycle approach of Rogoff and Sibert and the political theory of regulation of Peltzman: the idea that policy decisions may change with the proximity of elections is borrowed from the political business cycle theory and added to enhance the traditional, static models of political regulation. More specifically, I combine the main ideas of Peltzman (1976) and Rogoff and Sibert (1988) to model the regulator's problem as a signaling game where politicians set the regulated price trying to maximize electoral support by signaling to voters a pro-consumer behavior. Political incentives and welfare constraints interact in the model yielding an equilibrium in which the real price in a regulated industry falls in periods immediately preceding an election. Besides presenting a new model of political price cycles in regulated industries, this paper empirically test this theory. Using quarterly data from 35 industrial and developing countries over the period 1978-2004, I find a negative but not statistically significant relationship between elections and electricity prices.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Economics

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2015

Author dc:creator

• Moita, Rodrigo Menon Simoes

Contributors dc:contributor

• Leonardo Rezende

• Energy

Language dc:language

eng

Identifier

(MiAaPQ)AAI3242943

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/85574