With Daniel Spulber.
Published in Economic Inquiry 58(3), 2020: 1076-1108. http://dx.doi.org/10.1111/ecin.12879
Previously distributed as Kelley School of Business Research Paper, No. 17-50.
Abstract: We document the influence of factor markets in determining the extent of the market, by appealing to the Mundell Hypothesis that trade in goods markets and factor markets are substitutes. We confirm this influence using the U.S. wholesale market for electric power. Although the Eastern, Western, and Texas regions cannot trade electricity, inputs such as natural gas move freely across these regions. Through both a set of price transmission ratios, and a supply model for natural gas, we find regional electricity shocks do propagate across regions. We conclude output markets institutionally in autarky achieve modest degrees of economic integration through factor markets.
The most recent version of the working paper is available as a pdf. (56 pages, 3.1 MB)
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