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Date:      Thu, 21 Dec 2000 11:52:34 -0800
From:      "David Schwartz" <davids@webmaster.com>
To:        "Tim McMillen" <timcm@umich.edu>, "Crist J. Clark" <cjclark@reflexnet.net>
Cc:        <chat@FreeBSD.ORG>
Subject:   RE: CA Power Shortage (was Re: Why do you support Yahoo!)
Message-ID:  <NCBBLIEPOCNJOAEKBEAKAEHDMJAA.davids@webmaster.com>
In-Reply-To: <Pine.SOL.4.10.10012202355340.23356-100000@joust.gpcc.itd.umich.edu>

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> 	It seems the problem is economic and political.  There is no
> economic incentive for the power companies to invest in power grid
> upgrades.  Why should a power company spend billions on something that
> benefits their competitors as much as themselves.  Hint: they won't.  It
> is the classic economic free-rider problem.  Why spend money when you can
> take a free ride on what somebody else spends.  And while I generally
> subscribe to the Laisse Faire school of thought, it is generally
> considered that there is no solution to the free rider problem (in public
> utility cases) except for government intervention.  And the CA government
> does not seem able to get enough agreement on how to do what many people
> know needs to get done.

	Obviously it will take a government-supplied solution to fix a
government-created problem. If companies could own the improvements they
made to the power grid and charge their competitors a price to benefit from
them, there wouldn't be a free-rider problem. California's current
electrical system was entirely crafted by government regulators.

	If you put perverse economic incentives on companies, they will act
perversely. They have to, because they have an obligation to protect the
financial interests of their shareholders. So you'll find California energy
producers selling energy to other states when California is in a level 3
emergency simply because these other states can pay more.

	One thing, however, should be apparent to anyone who understands economics.
If the government acts to hold prices down, shortages are pretty much
inevitable.

	DS



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