Access Regulation and the Timing of Infrastructure Investment
This paper examines infrastructure investment incentives under a system of 'regulation by negotiation.' The authors demonstrate that an appropriately specified access pricing rule can induce private firms to choose to invest at a socially optimal time. The optimal regulatory regime allocates investment costs to the access provider and seeker based on their relative use-values of the facility. It is superior to an unregulated environment because it commits firms ex ante to an access charge that allows for sunk cost recovery. In addition, the authors show that when the time that access is sought is flexible both replacement and historical cost asset valuation methodologies can lead to optimal investment incentives. However, when seeker timing is restricted, historical cost can give rise to distorted incentives. Copyright 1999 by The Economic Society of Australia.
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Volume (Year): 75 (1999)
Issue (Month): 229 (June)
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