"The Western Energy Crisis was one of the great financial disasters of the past century, leading to the collapse of Enron, the largest corporate bankruptcy in US history. The crisis began in April of 2000 when price spikes started to rattle California's electricity markets. These new markets, designed to introduce competition and, ideally, drive prices down, created new openings for private companies. Within the span of a year, however, California's three biggest utilities were on the brink of bankruptcy. Competing for energy at public auctions, providers were unable to afford the now wildly expensive energy their customers needed. In sheer desperation, energy providers instituted rolling blackouts to accommodate the scarcity. Traffic lights, refrigerators, and ATM's stopped working. It was a perfect scandal, especially when it turned out that the energy sellers had manipulated the market to drive up the prices and then profit from the resulting disaster. Who was at fault? Decades later, some blame economic fundamentals and ignorant politicians, while others accuse the energy sellers who raided the markets. In Failure by Design, sociologist Georg Rilinger argues for a different explanation: market design. The unique physical attributes of electricity made it exceedingly challenging to introduce markets into the coordination of the electricity system, so market designers were brought in to construct the infrastructures that coordinate how market participants interact. These experts spent their days worrying about incentive misalignment and market manipulation. But they had instead created a system riddled with opportunities for destructive behavior. Viewed as a failure by design, the crisis demands a different explanation. Rilinger explains how some of the world's foremost authorities could create such a flawed system by first identifying the structural features that enabled destructive behavior, then by showing how the political, organizational, and cognitive conditions of design work prompted these design mistakes. The project not only delves into the California energy crisis and will engage those interested in energy and financial markets, but it also pursues a larger theoretical agenda in sociology and economics"--
A new framework for studying markets as the product of organizational planning and understanding the practical limits of market design.
The Western energy crisis was one of the great financial disasters of the past century. The crisis began in April 2000, when price spikes started to rattle Californias electricity markets. Decades later, some blame economic fundamentals and ignorant politicians, while others accuse the energy sellers who raided the markets. In Failure by Design, sociologist Georg Rilinger offers a different explanation, one that focuses on the practical challenges of market design. The unique physical attributes of electricity made it exceedingly difficult to introduce markets into the coordination of the electricity system, so market designers were brought in to construct the infrastructures that coordinate how market participants interact. An exercise in social engineering, these infrastructures were intended to guide market actors toward behavior that would produce optimal market results and facilitate grid management. Yet, though these experts spent their days worrying about incentive misalignment and market manipulation, they unintentionally created a system riddled with opportunities for destructive behavior. Rilingers analysis not only illuminates the California energy crisis but also develops a broader theoretical framework for thinking about markets as the products of organizational planning and the limits of social engineering, contributing broadly to sociological and economic thinking about the nature of markets.
