ginal effect of an incremental increase in the variable compliance costs of SCR on the
probability that SCR will be chosen is only 13% larger in restructured markets. In
percentage terms, the effect of electricity restructuring on the marginal effect of a
change in capital costs is greater than the corresponding effect of a change in vari-
able operating costs. A more formal statistical test of whether firms in restructured
markets are relatively more biased against incurring higher capital costs is a work in
progress.
Elasticity calculations provide a more intuitive characterization of the respon-
siveness of compliance decisions to changes in compliance costs. Table 6 presents the
elasticities of choice probabilities with respect to both capital and variable compli-
ance costs for the most common compliance choices. Elasticities are calculated using
both the CL and RPL coefficient estimates. The RPL model yields larger (in ab-
solute value) elasticity estimates for all compliance strategies, suggesting that the CL
model underestimates the responsiveness of compliance decisions to changes in com-
pliance costs. For example, if the expected capital cost of an SCR retrofit increases
by 1%, the RPL model predicts that the probability that a manager will choose to
retrofit his unit with SCR decreases by approximately 6% in regulated markets, and
approximately 11% in restructured electricity markets. The CL model predicts more
moderate decreases of 0.7% and 1.5% respectively. If anticipated variable costs in-
crease by 1%, the RPL model predicts that the probability of an SCR retrofit would
decrease by 2% and 4% in regulated and restructured markets respectively. The CL
model predicts decreases of only -0.80% and -1%.
Summary and Next Steps
This paper presents evidence that economic regulation in electricity markets has sig-
nificantly affected how electricity generators have chosen to comply with the NOx
25
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