The Effect of Monopoly Regulation on the Timing of Investment
AbstractThis paper contributes a theoretical analysis of the effects of different types of regulation on the timing of monopoly investment in a setting with lumpy investment outlays. Concentrating on the case where investment increases the regulatory asset base, we distinguish between price-based regulation and cost-based regulation. Under cost-based regulation, investment triggers a change of regulated prices, whereas, under price-based regulation, investment does not affect them. To motivate investment, we focus on wear and tear leading to replacement investment and on demand growth resulting in expansion investment. Our main conclusion is that cost-based regulation accelerates investment compared to price-based regulation.
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Bibliographic InfoPaper provided by Bremer Energie Institut in its series Bremen Energy Working Papers with number 0009.
Length: 23 pages
Date of creation: May 2011
Date of revision:
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Web page: http://www.bremer-energie-institut.de/
Cost-based regulation; Expansion investment; Investment timing; Monopoly; Price-based regulation; Replacement investment;
Find related papers by JEL classification:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- G00 - Financial Economics - - General - - - General
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-16 (All new papers)
- NEP-IND-2011-09-16 (Industrial Organization)
- NEP-REG-2011-09-16 (Regulation)
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- Ingo Vogelsang, 2010. "Incentive Regulation, Investments and Technological Change," CESifo Working Paper Series 2964, CESifo Group Munich.
- Gert Brunekreeft, 2012. "On the role of international benchmarking of electricity Transmission System Operators facing significant investment requirements," Bremen Energy Working Papers, Bremer Energie Institut 0012, Bremer Energie Institut.
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