Structuring Markets—Determining the Optimal Amount of Regulation: A Discussion of the Changing Electricity Industry

Abstract

Although an efficient market structure produces the maximum welfare for society as a whole, certain individuals may be better off without an efficient market structure. These individuals may be middlemen who profit from the lack of information and multiple prices that characterize an inefficient market, or they may be the bureaucrats and regulators who provide the command and control function in an overregulated market. The problem is to find just the right amount of regulation necessary to ensure that the new electricity market maximizes the welfare of society as a whole.