Regulatory institutions and firm strategy: Theory and evidence from the electric power industry

This dissertation consists of three chapters that collectively examine the relationship between political and regulatory institutions, firm strategy and public policy in the electricity sector.; The first chapter examines the effect of political risk on the international expansion strategies of firms in the electric power generation industry. Empirically, the impact of political risk is found to be uneven across firms. While higher levels of political risk typically discourage new investment, the effect is significantly lower for firms with greater levels of international experience. In addition to the level, the type of prior experience is an important factor in explaining the variation in firm investment strategy: the experience that firms accumulate in monopsony generation markets—where firms negotiate and contract directly with governments—has a significantly greater impact on their propensity to expand into more politically risky environments than does experience in competitive generation markets (where firms interact less frequently with governments). Thus, as multinationals gain more experience in monopsony markets and strengthen their political capabilities, they expand into more politically risky environments.; The second chapter explores the evolution of regulatory institutions in the U.S. in response to the oil shocks during the 1970s and 80s. The specific dimension considered is the timing of state-level legislation establishing new utility consumer advocacy institutions. Democratic political coalitions were found to be significantly more likely to create statutory consumer advocates when they were relatively uncertain about remaining in power at the next election. More generally, the findings provide empirical support for the hypothesis that legislatures use administrative procedures strategically, with the objective of insulating agency-determined policies against future reversals or modifications.; The third chapter examines the subsequent impact of consumer advocates on regulatory outcomes using evidence from over 700 rate reviews in the U.S. electricity sector during the 1980s. After controlling for potential sample selection bias, due to the non-random initiation of rate reviews, the empirical analysis suggests that consumer advocates are associated with utilities initiating rate reviews less frequently and, once initiated, with PUCs allowing lower rates of return.