Regulation of Network Infrastructure Investments

An Experimental Evaluation

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

Research output: Working paperDiscussion paperOther research output

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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

Fingerprint

Price cap regulation
Infrastructure investment
Evaluation
Holidays
Long-term contracts
Experiment
Incentives
Secondary market
Capacity investment

Keywords

  • Infrastructure Investment
  • Experiment
  • Price Cap
  • Regulatory Holiday

Cite this

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

Regulation of Network Infrastructure Investments : An Experimental Evaluation. / Henze, B.; Noussair, C.N.; Willems, Bert.

Tilburg : Economics, 2011. (CentER Discussion Paper; Vol. 2011-035).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Regulation of Network Infrastructure Investments

T2 - An Experimental Evaluation

AU - Henze, B.

AU - Noussair, C.N.

AU - Willems, Bert

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N2 - 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.

AB - 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.

KW - Infrastructure Investment

KW - Experiment

KW - Price Cap

KW - Regulatory Holiday

M3 - Discussion paper

VL - 2011-035

T3 - CentER Discussion Paper

BT - Regulation of Network Infrastructure Investments

PB - Economics

CY - Tilburg

ER -

Henze B, Noussair CN, Willems B. Regulation of Network Infrastructure Investments: An Experimental Evaluation. Tilburg: Economics. 2011. (CentER Discussion Paper).