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Use of Long-term Auctions for Network Investment

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Abstract

Short-term auctions for access to entry terminals of the British gas-network appear to successfully allocate scarce resources and capture scarcity rent. Now long-term auctions are being introduced to guide future capacity expansion decisions. In our model the fraction of rights issued in the long-term auction turns out to be a crucial design parameter. Even a `hypothetically` optimal parameter choice can in general only satisfy one of three aims: Unbiased provision of capacity, full revelation of private information and minimisation of distortions from network effects. The results suggest that long-term auctions for transmission capacity are not necessarily preferable to regulatory approved capacity expansion.

Suggested Citation

  • Tanga McDaniel & Neuhoff, K., 2002. "Use of Long-term Auctions for Network Investment," Cambridge Working Papers in Economics 0213, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0213
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    File URL: http://www.econ.cam.ac.uk/electricity/publications/wp/ep04.pdf
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    References listed on IDEAS

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    Cited by:

    1. Tanga McDaniel & Andreas Nicklisch, 2004. "Prices as Indicators of Scarcity: An Experimental Study of a Multistage Auction," Working Papers 04-18, Department of Economics, Appalachian State University.
    2. Christopher Decker, 2016. "Regulating networks in decline," Journal of Regulatory Economics, Springer, vol. 49(3), pages 344-370, June.

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    More about this item

    Keywords

    Auctions; Gas; Investment; Networks; Regulation;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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