Use of Long-term Auctions for Network Investment

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Use of Long-term Auctions for Network Investment

Author Info

Tanga McDaniel (University of Cambridge, Department of Applied Economics)
Karsten Neuhoff (University of Cambridge, Department of Applied Economics)

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Karsten Neuhoff

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.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2003.29.

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Date of creation: Mar 2003
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Handle: RePEc:fem:femwpa:2003.29

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Paper
- 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. [Downloadable!]

Find related papers by JEL classification:
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 and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing

This paper has been announced in the following NEP Reports:

NEP-COM-2004-09-12 (Industrial Competition)
NEP-MIC-2004-09-12 (Microeconomics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Other versions:
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Thomas-Olivier Leautier, 2000. "Regulation of an Electric Power Transmission Company," The Energy Journal, International Association for Energy Economics, vol. 21(4), pages 61-92.
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Other versions:
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Other versions:
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Other versions:
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Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1999. "Multidimensional Mechanism Design for Auctions with Externalities," Journal of Economic Theory, Elsevier, vol. 85(2), pages 258-293, April. [Downloadable!] (restricted)
Other versions:
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Other versions:
- Jehiel, Phillipe & Moldovanu, Benny, 1998. "Efficient Design with Interdependent Valuations," Sonderforschungsbereich 504 Publications 98-22, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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Other versions:
- Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790, December.

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Tanga McDaniel & Andreas Nicklisch, 2004. "Prices as indicators of scarcity - an experimental study of a multistage auction," Papers on Strategic Interaction 2004-30, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]

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