Efficiency and Income Shares in High-Demand Energy Networks: Who Receives the Congestion Rents when a Line is Constrained?


Steven R. Backerman Economic Science Laboratory, University of Arizona, Tucson, AZ 85721, USA.


We create an experimental spot market for electricity with demand side bidding, and use experimental methods to study the efficiency of the market and the income shares of the generators, wholesale buyers and transmission line operators. Nodal and line prices are computed on the basis of short run marginal costs, energy losses in transmission, and network opportunity costs when a line is constrained. We find that a traditional, competitive model, which yields congestion rents for the transmission line owners, does not explain the observed bidding behavior; and that subtle differences in institutional rules can cause changes in market efficiency.