TY - JOUR
T1 - Regulation of network infrastructure investments
T2 - An experimental evaluation
AU - Henze, B.
AU - Noussair, C.N.
AU - Willems, Bert
PY - 2012
Y1 - 2012
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. The setting is one in which network users can benefit from acting strategically, and are better informed than the network operator about demand growth. We find that the regulatory holiday creates an incentive to underinvest relative to optimal levels. Long term contracts also fail to improve on single price-cap regulation, and may reduce investment by providing noisier signals about future demand.
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. The setting is one in which network users can benefit from acting strategically, and are better informed than the network operator about demand growth. We find that the regulatory holiday creates an incentive to underinvest relative to optimal levels. Long term contracts also fail to improve on single price-cap regulation, and may reduce investment by providing noisier signals about future demand.
U2 - 10.1007/s11149-012-9185-4
DO - 10.1007/s11149-012-9185-4
M3 - Article
SN - 0922-680X
VL - 42
SP - 1
EP - 38
JO - Journal of Regulatory Economics
JF - Journal of Regulatory Economics
IS - 1
ER -