Essays on the Allocation of Scarce Resources among Competing Ends

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Essays on the Allocation of Scarce Resources among Competing Ends

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Title: Essays on the Allocation of Scarce Resources among Competing Ends
Author: Cicala, Steven Joseph
Citation: Cicala, Steven Joseph. 2013. Essays on the Allocation of Scarce Resources among Competing Ends. Doctoral dissertation, Harvard University.
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Abstract: The first chapter of this dissertation evaluates changes in fuel procurement practices by coal- and natural gas-fired electricity generating plants in the United States following state-level legislation that ended cost-of-service regulation. I construct a detailed dataset that links confidential, shipment-level data on the price of virtually all of the fuel delivered to coal- and gas-fired electricity plants in the United States from 1990-2009, with plant-level data on operations and regulatory status. I find the price of coal drops by 12% at deregulated plants relative to matched plants that were not subject to any regulatory change, whereas there was no relative drop in the price of gas. I show how my results lend support to theories of asymmetric information between generators and regulators, regulatory capture, and capital-bias as important sources of distortion under cost-of-service regulation. The second chapter analyses changes in the cost of generating electricity following the introduction of regional wholesale electricity markets. I use proxy methods based on Olley and Pakes (1996); Levinsohn and Petrin (2003) to estimate fuel-specific production functions, and construct the Olley-Pakes productivity index to decompose costs in to within-plant productivity and allocative efficiency changes. I then apply a potential outcomes framework to the derived productivity estimates, allowing the construction of counterfactual costs that explicitly account for permanent differences between market and non-market areas and common transitory shocks. I find that the introduction of market-based dispatch methods has reduced fossil-fuel production costs by upwards of 15%. The third chapter is based on joint work with Roland Fryer and Jorg Spenkuch. We develop a Roy model in which individuals sort into peer groups based on comparative advantage. Two key results emerge: First, when comparative advantage is the guiding principle of peer group organization, the effect of moving a student into an environment with higher-achieving peers depends on where in the ability distribution she falls and the effective wages that clear the social market. As a result, linear in means estimates of peer effects are not identified. We show that the model’s testable prediction in the presence of this confounding issue is borne out in two data sets.
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