Regulatory Uncertainty and Firm Response in the U.S. Electricity Industry

This paper explores the relationship between regulatory uncertainty and firm responses across regulated and unregulated states in the U.S. Electric Utilities industry. We employ behavioral and evolutionary frameworks to propose that regulatory uncertainty drives firms in regulated states to respond by hedging their business and technological investments across multiple options, and firms in unregulated states to respond by investing in collecting information via lobbying. In turn, these differential responses shape long-term strategy by rewarding diversified firms in regulated states, and rewarding lobbying in unregulated states. Our paper contributes by uniquely testing these ideas on a panel of publicly-owned firms in the U.S. Electric Utilities industry from 2000 to 2010, and finding support for our hypotheses.