The deregulation of Japan's electricity industry

Japan's electricity industry is now in the process of regulatory reform. This industry consists of three sectors: generation, transmission, and distribution. The reform phases out the entry barrier in the first sector, while keeping the latter two as they were with a rate-of-return (ROR) regulation. To simulate this regulatory reform, we employ a computable general equilibrium model, which distinguishes these three sectors and is equipped with the ROR regulation and substitution among various energy sources. Our numerical simulations show a potential for significant welfare improvements and substitution among energy inputs even if the reform scope is limited. (c) 2004 Elsevier B.V. All rights reserved.