Two Essays on Electricity Markets: Entry Into Hydroelectric Generation Industry and the Political Cycle of Regulated Prices
Moita, Rodrigo Menon Simoes
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https://hdl.handle.net/2142/85574
Description
Title
Two Essays on Electricity Markets: Entry Into Hydroelectric Generation Industry and the Political Cycle of Regulated Prices
Author(s)
Moita, Rodrigo Menon Simoes
Issue Date
2006
Doctoral Committee Chair(s)
Leonardo Rezende
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Energy
Language
eng
Abstract
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.
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