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Regulation of Network Infrastructure Investments: An Experimental Evaluation

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Author Info

  • Henze, B.
  • Noussair, C.N.
  • Willems, Bert

    (Tilburg University, Center for Economic Research)

Abstract

This paper reports the results of an experiment evaluating three regulatory schemes for network infrastructure, in terms of their ability to generate efficient levels of capacity investment. We compare the performance of (1) price cap regulation, (2) a regulatory holiday for new capacity, and (3) price cap regulation with long term contracts combined with a secondary market. We find that the price cap regulation outperforms the regulatory holiday as the latter creates an incentive to underinvest relative to optimal levels. Long term contracts also fail to improve on single price-cap regulation, and can provide more noisy signals about future demand and thus reduce investment.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-035.

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Date of creation: 2011
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Handle: RePEc:dgr:kubcen:2011035

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Keywords: Infrastructure Investment; Experiment; Price Cap; Regulatory Holiday;

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Cited by:
  1. Krämer, Jan & Vogelsang, Ingo, 2012. "Co-investments and tacit collusion in regulated network industries: Experimental evidence," 23rd European Regional ITS Conference, Vienna 2012 60389, International Telecommunications Society (ITS).

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