Unintended Consequences of Interventions in Electricity Production and Consumption

Abstract

Government interventions are contradictory theme in economic science. Subsidies and price control in electricity production and consumption are justified to “treat” negative externalities such as climate changes, security of supplies, innovation or unemployment issues. Many authors contradict such a treatment and prove to be ineffective. Our main focus in this article is to analyze interventions and their consequences in electricity market in Slovakia. We refer to claim of Mises, that intervention produces unintended consequences, leads to escalating price fixing and at the end it eliminates the market altogether. We examined intention, goals and tools of Slovak regulatory agency and proved those are unduly determined and will not lead to desired ends. We have proved that real outcomes of this policy had led to unintended consequences such as excess of production facilities, declining prices of electricity, decreased profitability of all producers and exit from market of marginal production sources that are not subsidized. We applied mainly Austrian economic school methods, based on methodological individualism, dualism, apriorism and deductive logic, supplemented by descriptive statistics, comparative and classification analysis.    

Keywords: competition; interventions; price control; submarginal production; Subsidies