Beyond economics for guiding large public policy issues: Lessons from the Bell System divestiture and the California electricity crisis

During the summer (2000), wholesale electricity prices in California were approximately 500% higher than those during the same months in 1998-1999. This study finds that the price hike has occurred due to an increase in fuel prices and real demand. The change of the two market fundamentals explains 45.73% of the price increase and fluctuation during the crisis. The responsibility of energy utility firms is 21.41%. The policy implication regarding the California electricity crisis is different from well-known economic studies which have attributed the price hike to the exercise of market power. The difference points up a need for drawing on researchers from multiple disciplines who are capable of checking each other's methodologies in guiding large policy decisions. This need was suggested by Professor Cooper regarding the AT&T breakup two decades ago.