different types of electricity markets might weigh choice attributes differently, variable
and capital cost variables are interacted with an electricity market structure dummy
that equals one if the plant is operating in a restructured electricity market and is
not state owned and operated, zero otherwise. Because older plants can be expected
to use shorter investment time horizons, the theoretical model predicts that older
plants will weigh capital costs more heavily in their compliance decisions (|^₽- < 0).
To allow the capital cost coefficient to vary with plant age, I include an interaction
term in both models. The youngest plant in the sample was built in 1996; plant age
is defined as vintage year-1996.25
The age-capital cost interaction terms are both significant and have the expected
negative sign. The older the plant, the shorter the investment time horizon, the
more significant the effect of an increase in capital costs on choice probabilities. The
age-capital cost coefficient is found to be significantly more negative among units
operating in restructured markets. Somewhat surprisingly, the coefficient on the un-
interacted capital cost variable is not significant, implying that an incremental change
in capital costs does not significantly affect the probability that a control technology
will be adopted at a very young plant. This "baseline" capital cost coefficient, (i.e.
the average value of the coefficient for very young plants) does not differ significantly
between restructured and regulated markets. These results imply that among units
of similar age, larger negative capital cost coefficients are associated with units in
restructured markets. Although both the variable cost and the variable cost∕market
structure interaction term coefficients are negative, the coefficient on the interaction
term is not statistically significant. All technology specific fixed effects are negative
and statistically significant.
The two CL models (I and II) are compared using a nested likelihood ratio test. A
test statistic of 75.74 is highly significant (see Table 4). This implies that accounting
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