University of California Energy Institute

CSEM WP-174

Career Concerns, Inaction and Market Inefficiency: Evidence from utility regulation

Severin Borenstein, Meghan Busse and Ryan Kellogg

Abstract:
This paper examines how 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 directly 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 peroids 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.

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