Career Concerns, Inaction and Market Inefficiency: Evidence From Utility Regulation


  • We are grateful for helpful comments from Lucas Davis, Paul Gertler, Erin Mansur, Steve Tadelis, Matt White, Frank Wolak, three anonymous referees and the Editor, and from seminar participants at U.C. Berkeley, the U.C. Energy Institute, the University of Michigan, and NBER. Special thanks to Koof Kalkstein for sharing his extensive knowledge of the natural gas markets with us. We are grateful to the OpenLink Fund within U.C. Berkeley's Coleman Fung Risk Management Research Center and to the Energy Institute at the Haas School of Business for financial support.


We study how incentive conflicts known as ‘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 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 periods 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.