THE EXTENT OF THE MARKET AND INTEGRATION THROUGH FACTOR MARKETS: EVIDENCE FROM WHOLESALE ELECTRICITY

R. Andrew Butters*, Daniel F. Spulber

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We document the influence of factor markets in determining the extent of the market, appealing to the Mundell hypothesis that trade in goods and factor markets are substitutes. We confirm this influence using the U.S. wholesale market for electric power. Although the Eastern, Western, and Texas regions cannot trade electricity, inputs such as natural gas move freely across these regions. Through a set of price transmission ratios, and a supply model for natural gas, we find regional electricity shocks do propagate across regions. We conclude output markets institutionally in autarky achieve modest degrees of economic integration through factor markets. (JEL C32, L94, Q41).

Original languageEnglish (US)
Pages (from-to)1076-1108
Number of pages33
JournalEconomic Inquiry
Volume58
Issue number3
DOIs
StatePublished - Jul 1 2020

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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