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A cost function for the natural gas transmission industry: further considerations


  • Massol, O.


This article studies the cost function for the natural gas transmission industry. In addition to a tribute to H.B. Chenery, it firstly offers some further comments on a recent contribution (Yépez, 2008): a statistical characterization of long-run scale economies, and a simple reformulation of the long-run problem. An extension is then proposed to analyze how the presence of seasonally-varying flows modifies the optimal design of a transmission infrastructure. Lastly, the case of a firm that anticipates a possible random rise in its future output is also studied to discuss the optimal degree of excess capacity to be built into a new transmission infrastructure.

Suggested Citation

  • Massol, O., 2011. "A cost function for the natural gas transmission industry: further considerations," Working Papers 11/03, Department of Economics, City University London.
  • Handle: RePEc:cty:dpaper:11/03

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    References listed on IDEAS

    1. James M. Griffin, 1977. "Long-Run Production Modeling with Pseudo Data: Electric Power Generation," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 112-127, Spring.
    2. Andre, Jean & Bonnans, Frédéric & Cornibert, Laurent, 2009. "Optimization of capacity expansion planning for gas transportation networks," European Journal of Operational Research, Elsevier, vol. 197(3), pages 1019-1027, September.
    3. James M. Griffin, 1979. "Statistical Cost Analysis Revisited," The Quarterly Journal of Economics, Oxford University Press, vol. 93(1), pages 107-129.
    4. Griffin, James M, 1978. "Joint Production Technology: The Case of Petrochemicals," Econometrica, Econometric Society, vol. 46(2), pages 379-396, March.
    5. Axel PIERRU, 2007. "Short-run and long-run marginal costs of joint products in linear programming," Discussion Papers (REL - Recherches Economiques de Louvain) 2007022, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    6. 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, July.
    7. Callen, Jeffrey L, 1978. "Production, Efficiency, and Welfare in the Natural Gas Transmission Industry," American Economic Review, American Economic Association, vol. 68(3), pages 311-323, June.
    8. Kabirian, Alireza & Hemmati, Mohammad Reza, 2007. "A strategic planning model for natural gas transmission networks," Energy Policy, Elsevier, vol. 35(11), pages 5656-5670, November.
    9. Axel Pierru, 2007. "Short-run and long-run marginal costs of joint products in linear programming," Recherches économiques de Louvain, De Boeck Université, vol. 73(2), pages 153-171.
    10. Daniel De Wolf & Yves Smeers, 2000. "The Gas Transmission Problem Solved by an Extension of the Simplex Algorithm," Management Science, INFORMS, vol. 46(11), pages 1454-1465, November.
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    Cited by:

    1. Massol, Olivier & Tchung-Ming, Stéphane & Banal-Estañol, Albert, 2015. "Joining the CCS club! The economics of CO2 pipeline projects," European Journal of Operational Research, Elsevier, vol. 247(1), pages 259-275.
    2. Massol, O. & Tchung-Ming, S., 2012. "Joining the CCS Club! Insights from a Northwest European CO2 Pipeline Project," Working Papers 12/10, Department of Economics, City University London.


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