Reliability and competitive electricity markets

Paul Joskow*, Jean Tirole

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

220 Scopus citations


We derive the optimal prices and investment program for an electric power system when there are price-insensitive retail consumers served by load serving entities that can choose any level of rationing contingent on real-time prices. We then examine the assumptions required for competitive electricity markets to achieve this optimal price and investment program and the implications of relaxing several of these assumptions. We analyze the interrelationships between regulator-imposed wholesale market price caps and generating capacity obligations. The implications of potential network collapses for operating reserve requirements and whether market prices yield generation investments consistent with these reserve requirements are examined.

Original languageEnglish (US)
Pages (from-to)60-84
Number of pages25
JournalRAND Journal of Economics
Issue number1
StatePublished - Mar 2007
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics


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