Since the 1990s, many countries have deregulated their electricity markets. Electricity producers and distributors participate in auctions in forward and spot markets, which determine production allocation and wholesale prices. A key policy question for the United States and the rest of the world is whether financial traders should be allowed to participate in the auctions to arbitrage differences between forward and spot prices. Does arbitrage benefit consumers? Does it lead to more efficient allocation of production resources? This article summarises Ito and Reguant (2016), and address those questions from theoretical and empirical perspectives by examining the Iberian electricity market.
Markets
Health insurance competition: effects on premiums, hospital rates, and welfare
In evaluating health insurance mergers recently proposed in the U.S., regulators have grappled with the costs and benefits of reduced insurer competition. Our study examines the direct and indirect effects that a reduction in the number of insurers has on premiums, provider reimbursement rates, and consumer welfare. Using detailed health and enrollment data and focusing on a part of the commercial health care market, we examine whether consumers are typically harmed when an insurer is removed from the market. Absent premium setting constraints, we find that premiums typically rise, and consumers are generally harmed as they suffer from having fewer options. However, we also find that the reimbursement rates negotiated by hospitals need not always increase, and in many cases, can actually fall.
