Generating efficiency: economic and environmental regulation of public andprivate electricity generators in Spain

Economic regulation of firms with market power has placed increasing emphas is on incentive-based regulation such as price caps, We focus on the effect of regulation as distinct from ownership, and identify the effect of two d ifferent regulatory schemes on both publicly and privately owned Spanish el ectricity generators. Publicly owned generators were more efficient under c ost of service regulation; private (but not public) firms responded to ince ntive regulation by increasing efficiency, bringing their productivity to s imilar levels. We introduce some novelty in modelling efficiency, including three pollutants and declared plant availability as outputs, and we test f or the effect of environmental regulation in reducing pollutants. (C) 2002 Elsevier Science B.V. All rights reserved.