Infrastructure Capacity, Risk, and Firm Value: Evidence from U.S. Electricity Tightness

Abstract

Real-time bottlenecks in non-storable infrastructure—most visibly electricity—can throttle modern production. We embed proportional rationing of grid supply into multi-sector economy, showing that unexpected scarcity cuts output, employment, and consumption, while the prospect of future capacity expansions mitigates those losses. To test the model’s predictions, we measure U.S. public firms’ exposure to realized electric capacity constraints and future expected capacity tightness. We confirm the model’s predictions using panel regressions with fixed effects and establish causality by exploiting two quasi-natural experiments: the 2021 Texas blackout (a 34 GW supply shock) and subsequent state reforms that raised future expected capacity. Difference-in-differences estimates indicate a drop in short-term profitability and firm value in affected firms. Higher future anticipated capacity leads to higher longer-term employment, capital, and firm value. Investors demand higher expected returns for firms with greater exposure to electric capacity constraints, confirming that infrastructure tightness, either due to excess demand or limited supply, is a priced, macro-critical risk.