A lesson from Argentina: Setting transmission tolls in a competitive auction is much better than regulating them
There are at least two procedures for setting the tolls paid by power line users. One consists of regulating them in a standard process. The other, which is used in Argentina, involves auctioning the lines to the lowest toll. In this paper we show that an auction yields higher expected social welfare if n >= 2 bid. Expected social welfare is even higher if, as in Argentina, those who benefit from the line can also bid and build. Moreover, when the social welfare is utilitarian, an auction beats regulation even when the regulator can perfectly audit costs ex post. We describe and examine the auction of the fourth Comahue transmission line in Argentina. Assuming that the regulator's information about costs is similar to the information held by the industry, the model suggests that had tolls been regulated, they would have been at least 61% higher.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Chisari, Omar O. & Dal-Bo, Pedro & Romero, Carlos A., 2001.
"High-tension electricity network expansions in Argentina: decision mechanisms and willingness-to-pay revelation,"
Elsevier, vol. 23(6), pages 697-715, November.
- Chisari, Omar O. & Dal-Bó, Pedro & Romero, Carlos A., 2000. "High-Tension Electricity Network Expansions in Argentina: Decision Mechanisms and Willigness-to-Pay Revelation," UADE Working Papers 9_2000, Instituto de Economía, Universidad Argentina de la Empresa.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
- Rafael Di Tella & Alexander Dyck, 2008. "Cost Reductions, Cost Padding, and Stock Market Prices: the Chilean Experience with Price-Cap Regulation," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 155-196, January.
- Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
- Klemperer, Paul, 1999. "Auction Theory: a Guide to the Literature," CEPR Discussion Papers 2163, C.E.P.R. Discussion Papers.
- Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Microeconomics 9903002, EconWPA.
- Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
- Laffont,Jean-Jacques, 2005. "Regulation and Development," Cambridge Books, Cambridge University Press, number 9780521840187, September.
- Laffont,Jean-Jacques, 2005. "Regulation and Development," Cambridge Books, Cambridge University Press, number 9780521549486, August.
- Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, vol. 50(4), pages 911-930, July.