Transaction Costs, Agency Theory and the Complexity of Electric Power Distribution Governance
Southern New Hampshire University
Last modified: May 26, 2006
Electrification provides citizens unique empowerment, creates economic opportunities, reduces poverty, and allows democratic ideals to be realized. Many developing nations are transitioning from state owned and operated enterprises, SOEs, to privatized investor owned firms, IOUs. The system of governance and method of transition affects the outcome and levels of societal benefit. While the operation and governance of SOEs has been very inefficient, investor owned utilities in many cases have not meet expectations. Investor owned firms are mandated to create wealth for their investors precluding investment in unsustainable and low return yielding areas. Collections and theft have been problematic. Micro-economic effects of local control, firm governance relation to agents advantage or disadvantage of asymmetric information, agents relative importance of value maximization versus wealth maximization, and, relative societal pressures based on ownership structure results in very divergently behavior.
Transactional and agency costs affect overall firm performance as does the governance structures itself. Not only does the firmís performance and efficiency affect outcomes, the customerís behavior has been observed to be highly dependent on firm ownership type. Agents behave differently depending whether the firm is state owned, owed by multinational IOUs, local IOUs, or a cooperative.
This work develops an agent-based model to distinguish the actions of agents to governance structure. Here the societal benefit level is derived from individual maximization strategies optimally chosen by agents with varying wealth maximization levels and with varying human and financial capital. This in return effects the societal versus private wealth maximization for the individual agents. Simulating various governance structures with heterogeneous agents we show that there are locally stable equilibrium performance levels with governance determinants.