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Career Concerns, Inaction and Market Inefficiency: Evidence From Utility Regulation
Author(s) -
Borenstein Severin,
Busse Meghan R.,
Kellogg Ryan
Publication year - 2012
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2012.00478.x
Subject(s) - inefficiency , incentive , procurement , value (mathematics) , outcome (game theory) , economics , lead (geology) , microeconomics , business , industrial organization , public economics , marketing , geomorphology , machine learning , computer science , geology
We study how incentive conflicts known as ‘career concerns’ can generate inefficiencies not only within firms but also in market outcomes. Career concerns may lead agents to avoid actions that, while value‐increasing in expectation, could potentially be associated with a bad outcome. We apply this theory to natural gas procurement by regulated public utilities and show that career concerns may lead to a reduction in surplus‐increasing market transactions during periods when the benefits of trade are likely to be greatest. We show that data from natural gas markets are consistent with this prediction and difficult to explain using alternative theories.