Premium
Decentralizing hydro power production
Author(s) -
Ambec Stefan,
Doucet Joseph A.
Publication year - 2003
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/1540-5982.t01-2-00004
Subject(s) - production (economics) , hydropower , inefficiency , constraint (computer aided design) , hydro power , electricity , competition (biology) , electricity market , microeconomics , power (physics) , environmental economics , hydroelectricity , economics , industrial organization , natural resource economics , environmental science , water resource management , engineering , mechanical engineering , ecology , physics , quantum mechanics , biology , electrical engineering
. We analyse the production of electricity from n power stations in a dynamic model. Each power station's production of electricity is constrained by the quantity of water available to it (supply constraint) as well as limitations on reservoir capacity (storage constraint). We show that hydro power production can lead to two sources of welfare loss: suboptimal management of water resources and the exercise of market power. A monopolist minimizes the first source of inefficiency, whereas decentralized production in a competitive environment minimizes the second. The decision to introduce competition in hydropower production must account for these two opposite effects. JEL Classification: L11, Q48