Search

Begin New Search Political Geography California Author Georg Rilinger

1. The Organizational Roots of Market Design Failure: Structural Abstraction, the Limits of Hierarchy, and the California Energy Crisis of 2000/01.

Author:
Georg Rilinger
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
Economic sociologists have rarely studied organizational reasons why market design pro- cesses fail. Drawing on the organizational literature on mistakes and accidents, the paper identifies such reasons for a fatal design decision during the creation of California’s first electricity markets. Designers proposed weak oversight structures even though their mod- els called for active and permanent regulatory control. Sellers like Enron could therefore manipulate the market without fear of detection, prolonging the western energy crisis. A process of “structural abstraction” explains this mistake. Designers were split into three groups that worked in different divisions and relied on local frames to understand the over- sight requirements. Each group missed information the others were aware of and arrived at the conclusion that minimal oversight would suffice. Higher levels of the hierarchy should have discovered and resolved these discrepancies. However, these levels considered the is- sue at a higher level of abstraction. Such structural abstraction made room for ambiguities that obscured the local disagreements.
Topic:
Climate Change, Economics, Energy Policy, Electricity, and Energy Crisis
Political Geography:
California, North America, and United States of America

2. The Organizational Roots of Market Design Failure: Structural Abstraction, the Limits of Hierarchy, and the California Energy Crisis of 2000/01

Author:
Georg Rilinger
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
Economic sociologists have rarely studied organizational reasons why market design processes fail. Drawing on the organizational literature on mistakes and accidents, the paper identifies such reasons for a fatal design decision during the creation of California’s first electricity markets. Designers proposed weak oversight structures even though their models called for active and permanent regulatory control. Sellers like Enron could therefore manipulate the market without fear of detection, prolonging the western energy crisis. A process of “structural abstraction” explains this mistake. Designers were split into three groups that worked in different divisions and relied on local frames to understand the oversight requirements. Each group missed information the others were aware of and arrived at the conclusion that minimal oversight would suffice. Higher levels of the hierarchy should have discovered and resolved these discrepancies. However, these levels considered the issue at a higher level of abstraction. Such structural abstraction made room for ambiguities that obscured the local disagreements.
Topic:
Economics, Markets, Sociology, Hierarchy, and Energy Crisis
Political Geography:
California, North America, and United States of America