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Minimum Bill Contracts: Theory and Policy

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  • Masten, Scott E

Abstract

This paper examines the efficiency implications of minimum bill cont racts, and concludes that minimum bill provisions promote rather than impede efficient adaptation to changing circumstances. In particular , minimum bills provide a simple mechanism by which parties faced wit h uncertain demand and rising marginal cost can approximate joint-pro fit maximizing payment schedules in transaction-specific relationship s governed by long-term contracts. The paper also questions the merit of proposals for legislative or regulatory intervention to reduce mi nimum bill obligations in natural gas contracts, and considers the ap propriate legal status of these provisions in the event of contractua l failure. Copyright 1988 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 37 (1988)
Issue (Month): 1 (September)
Pages: 85-97

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Handle: RePEc:bla:jindec:v:37:y:1988:i:1:p:85-97

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Cited by:
  1. Anne Neumann & Christian von Hirschhausen, 2006. "Long-Term Contracts and Asset Specificity Revisited: An Empirical Analysis of Producer-Importer Relations in the Natural Gas Industry," Discussion Papers of DIW Berlin 552, DIW Berlin, German Institute for Economic Research.
  2. Navajas, Fernando H., 2008. "Infrastructure integration and incomplete contracts: natural gas in the Southern Cone," MPRA Paper 31025, University Library of Munich, Germany.
  3. Benito Arruñada & Manuel González, 1997. "How competition controls team production: The case of fishing firms," Economics Working Papers 261, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Neuhoff, K. & von Hirschhausen, C., 2005. "Long-term vs. Short-term Contracts; A European perspective on natural gas," Cambridge Working Papers in Economics 0539, Faculty of Economics, University of Cambridge.
  5. Joseph C. Mullin & Wallace P. Mullin, 1996. "United States Steel's Acquisition of the Great Northern Ore Properties: Vertical Foreclosure or Efficient Contractual Governance?," NBER Working Papers 5662, National Bureau of Economic Research, Inc.
  6. Lisa J. Cameron, 2000. "Limiting Buyer Discretion: Effects on Performance and Price in Long-Term Contracts," American Economic Review, American Economic Association, vol. 90(1), pages 265-281, March.
  7. Creti, Anna & Villeneuve, Bertrand, 2004. "Long-term contracts and take-or-pay clauses in natural gas Markets," Economics Papers from University Paris Dauphine 123456789/5372, Paris Dauphine University.

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