Use of Long-term Auctions for Network Investment
AbstractShort-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.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0213.
Date of creation: May 2002
Date of revision:
Note: CMI IO
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Web page: http://www.econ.cam.ac.uk/index.htm
Auctions; Gas; Investment; Networks; Regulation;
Other versions of this item:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
- L5 - Industrial Organization - - Regulation and Industrial Policy
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-06-13 (All new papers)
- NEP-ENE-2002-06-13 (Energy Economics)
- NEP-MIC-2002-06-18 (Microeconomics)
- NEP-NET-2002-06-13 (Network Economics)
- NEP-REG-2002-06-13 (Regulation)
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