IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/2151.html
   My bibliography  Save this paper

A few things transport regulators should know about risk and the cost of capital

Author

Listed:
  • Alexander, Ian
  • Estache, Antonio
  • Oliveri, Adele

Abstract

In reviewing contracts, establishing price limits, or arbitrating conflicts, regulatory agencies and policy advisors face significant information asymmetry in determining the appropriate allowed rate of return, or discount rate. The information gap is especially important in determining the degree of market risk - often a critical component of the cost of capital demanded by operators. The authors consider various methodological problems in the transport sector in establishing the link between regulatory regime and degree of market risk The results of quantitative studies confirm that even for the transport sector - where there is intermodal competition and where contracts are often shorter and regulatory decisions may be less pressing than for utilities - the choice of regulatory regime greatly affects the degree of market risk a company faces. This has important implication for regulatory agencies and actions. When a regulatory agency undertakes a price review, or when issues arise about concession contracts, it is important that regulators assess correctly the required rate of return and cost of capital. They must also assess correctly the level of risk, which affects the required rate of return and the cost of capital. Most regulators in developing countries have a problem: the regulated companies are unquoted or undertake many activities for a range of industries and even sectors. For them this methodology for measuring the cost of capital, calculating the measure of market risk, and estimating the impact of various regulatory regimes on market risk may be useful.

Suggested Citation

  • Alexander, Ian & Estache, Antonio & Oliveri, Adele, 1999. "A few things transport regulators should know about risk and the cost of capital," Policy Research Working Paper Series 2151, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2151
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1999/09/14/000094946_99073007343485/Rendered/PDF/multi_page.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alexander, Ian & Mayer, Colin & Weeds, Helen, 1996. "Regulatory structure and risk and infrastructure firms : an international comparison," Policy Research Working Paper Series 1698, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ian Alexander & Antonio Estache, 2000. "Industry restructuring and regulation: Building a base for sustainable growth - lessons from Latin America," Development Southern Africa, Taylor & Francis Journals, vol. 17(3), pages 307-337.
    2. Knight-John, Malathy & Jayasinghe, Shantha & Perumal, Andrew, 2004. "Regulatory Impact Assessment in Sri Lanka: The Bridges That Have To Be Crossed," Centre on Regulation and Competition (CRC) Working papers 30666, University of Manchester, Institute for Development Policy and Management (IDPM).
    3. Chalmeau, Olivier, 2013. "Determinants of European telecommunication operators systematic risk," 24th European Regional ITS Conference, Florence 2013 88495, International Telecommunications Society (ITS).
    4. Andrea Goldstein & José Claudio Linhares Pires, 2006. "Brazilian Regulatory Agencies: Early Appraisal and Looming Challenges," Chapters, in: Edmund Amann (ed.), Regulating Development, chapter 6, Edward Elgar Publishing.
    5. repec:vuw:vuwscr:18939 is not listed on IDEAS
    6. Arblaster, Margaret, 2018. "Regulation in markets facing uncertainty: The case of Australia," Journal of Air Transport Management, Elsevier, vol. 67(C), pages 249-258.
    7. Kashi, Bahman, 2015. "Risk management and the stated investment costs by independent power producers," Energy Economics, Elsevier, vol. 49(C), pages 660-668.
    8. Clive Stones, 2007. "Risk Sharing, the Cost of Equity and the Optimal Capital Structure of the Regulated Firm," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(2), pages 139-159, March.
    9. Grout, Paul A. & Zalewska, Anna, 2006. "The impact of regulation on market risk," Journal of Financial Economics, Elsevier, vol. 80(1), pages 149-184, April.
    10. Gustavo Ferro & Omar O. Chisari, 2010. "Tópicos de Economía de la Regulación de los Servicios Públicos," Working Papers hal-00473038, HAL.
    11. Tobias Kretschmer & Hans-Ulrich Küpper & Burkhard Pedell, 2011. "Bedingungen und Prinzipien einer konsistenten Regulierung," Schmalenbach Journal of Business Research, Springer, vol. 63(64), pages 1-31, January.
    12. Colin Kirkpatrick & David Parker & Yin-Fang Zhang, 2005. "Price and Profit Regulation in Developing and Transition Economies: A Survey of the Regulators," Public Money & Management, Taylor & Francis Journals, vol. 25(2), pages 99-105, April.
    13. Kirkpatrick, Colin & Parker, David & Zhang, Yin-Fang, 2004. "Price and Profit Regulation in Developing and Transition Economies, Methods Used and Problems Faced: A Survey of the Regulators," Centre on Regulation and Competition (CRC) Working papers 30596, University of Manchester, Institute for Development Policy and Management (IDPM).
    14. Alexander Moore & Stéphane Straub & Jean-Jacques Dethier, 2014. "Regulation, renegotiation and capital structure: theory and evidence from Latin American transport concessions," Journal of Regulatory Economics, Springer, vol. 45(2), pages 209-232, April.
    15. Klein, Michael, 1997. "Managing guarantee programs in support of infrastructure investment," Policy Research Working Paper Series 1812, The World Bank.
    16. Ferreira Savoia, José Roberto & Securato, José Roberto & Bergmann, Daniel Reed & Lopes da Silva, Fabiana, 2019. "Comparing results of the implied cost of capital and capital asset pricing models for infrastructure firms in Brazil," Utilities Policy, Elsevier, vol. 56(C), pages 149-158.
    17. Marin s Taffarel & Wesley Vieira da Silva & Ademir Clemente & Claudimar Pereira da Veiga & Jansen Maia Del Corso, 2015. "The Brazilian Electricity Energy Market: The Role of Regulatory Content Intensity and Its Impact on Capital Shares Risk," International Journal of Energy Economics and Policy, Econjournals, vol. 5(1), pages 288-304.
    18. Nnaemeka Vincent Emodi & Kyung-Jin Boo, 2015. "Decomposition Analysis of CO2 Emissions from Electricity Generation in Nigeria," International Journal of Energy Economics and Policy, Econjournals, vol. 5(2), pages 565-573.
    19. Paul Levine & Paul Levine & Jon Stern & Francesc Trillas, 2003. "Independent Utility Regulators: Lessons from Monetary Policy," School of Economics Discussion Papers 0403, School of Economics, University of Surrey.
    20. Chris Shugart, 1998. "Regulation-by-Contract and Municipal Services: The Problem of Contractual Incompleteness," Development Discussion Papers 1998-09, JDI Executive Programs.
    21. Sirtaine, Sophie & Pinglo, Maria Elena & Guasch, J. Luis & Foster, Vivien, 2005. "How profitable are private infrastructure concessions in Latin America?: Empirical evidence and regulatory implications," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(2-3), pages 380-402, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2151. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.