Regulation of Network Infrastructure Investments: An Experimental Evaluation

B. Henze, C.N. Noussair, Bert Willems

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Abstract

This paper reports the results of an experiment evaluating three regulatory schemes for network infrastructure, in terms of their ability to generate efficient levels of capacity investment. We compare the performance of (1) price cap regulation, (2) a regulatory holiday for new capacity, and (3) price cap regulation with long term contracts combined with a secondary market. We find that the price cap regulation outperforms the regulatory holiday as the latter creates an incentive to underinvest relative to optimal levels. Long term contracts also fail to improve on single price-cap regulation, and can provide more noisy signals about future demand and thus reduce investment.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Volume2011-035
Publication statusPublished - 2011

Publication series

NameCentER Discussion Paper
Volume2011-035

Keywords

  • Infrastructure Investment
  • Experiment
  • Price Cap
  • Regulatory Holiday

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    Henze, B., Noussair, C. N., & Willems, B. (2011). Regulation of Network Infrastructure Investments: An Experimental Evaluation. (CentER Discussion Paper; Vol. 2011-035). Economics.