Who decides the rules for network use? A ‘common pool’ analysis of gas network regulation

Gas sector liberalization is based on opening networks to different players, so they become common pool resources. Different players using the same resources can give rise to “commons’ dilemmas†. To avoid them, rules must be established to constrain players’ use of the network. We build on the concept of common's pool resources to analyze the logic for and consequences of different institutional settings governing the use of gas pipelines. We show that rules based on regulation imply ex ante decisions that preclude players to choose the preferred output. This limitation may be removed by rules designed by market players. We also show that the mechanism to define the rules is based on the definition of network use property rights. The practical implications of our approach are stressed by comparing the US mechanism (negotiated rules) and the EU mechanism (regulated rules).