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Demand Uncertainty and the Regulated Firm

Braeutigam, Ronald R. and Quirk, James P. (1984) Demand Uncertainty and the Regulated Firm. International Economic Review, 25 (1). pp. 45-60. ISSN 0020-6598. https://resolver.caltech.edu/CaltechAUTHORS:20171018-151615546

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Abstract

[Introduction] In this paper, we investigate the impact of demand uncertainty on the choice of plant capacity by a regulated firm. Over the past few years, demand uncertainty has become a major element in the decision-making of utilities, and particularly in their decision-making with respect to capacity choices. In a recent study by SRI [1977], it was reported that to maximize expected consumers' surplus, more generating capacity was required for the electric utility industry when operating under demand uncertainty than under demand certainty.1 This finding raises the question whether the structure of rate regulation of electric utilities provides the appropriate incentives for them to invest in more capacity under demand uncertainty then under certainty. The present paper addresses such questions.


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http://www.jstor.org/stable/2648865JSTORArticle
http://resolver.caltech.edu/CaltechAUTHORS:20171017-144203932Related ItemSocial Science Working Paper 261
Additional Information:Manuscript received July 7, 1981; revised May 12, 1983. This research was supported in part under a DOE grant, EY-76-G-03-1305, EQL Block. We wish to thank Al Klevorick and Oscar Burt for their comments and suggestions, and the Environmental Quality Laboratory at Caltech for help and assistance in this research.
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Department of Energy (DOE)EY-76-G-03-1305
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Deposited By: Katherine Johnson
Deposited On:18 Oct 2017 22:23
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