Regulation of network infrastructure investments: An experimental evaluation

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

Research output: Contribution to journalArticleScientificpeer-review

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. 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.
LanguageEnglish
Pages1-38
JournalJournal of Regulatory Economics
Volume42
Issue number1
DOIs
StatePublished - 2012

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

Cite this

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Regulation of network infrastructure investments : An experimental evaluation. / Henze, B.; Noussair, C.N.; Willems, Bert.

In: Journal of Regulatory Economics, Vol. 42, No. 1, 2012, p. 1-38.

Research output: Contribution to journalArticleScientificpeer-review

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