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Regulation of network infrastructure investments: an experimental evaluation

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  • Bastian Henze
  • Charles Noussair
  • Bert Willems

Abstract

This paper reports the results of an experiment evaluating three regulatory schemes for network infrastructure, in terms of their ability to generate efficient levels of capacity investment. We compare the performance of (1) price cap regulation, (2) a regulatory holiday for new capacity, and (3) price cap regulation with long term contracts combined with a secondary market. We find that the price cap regulation outperforms the regulatory holiday as the latter creates an incentive to underinvest relative to optimal levels. Long term contracts also fail to improve on single price-cap regulation, and can provide more noisy signals about future demand and thus reduce investment.
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  • Bastian Henze & Charles Noussair & Bert Willems, 2012. "Regulation of network infrastructure investments: an experimental evaluation," Journal of Regulatory Economics, Springer, vol. 42(1), pages 1-38, August.
    • Handle: RePEc:kap:regeco:v:42:y:2012:i:1:p:1-38
    DOI: 10.1007/s11149-012-9185-4
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    Cited by:

    1. Briglauer Wolfgang & Frübing Stefan & Vogelsang Ingo, 2014. "The Impact of Alternative Public Policies on the Deployment of New Communications Infrastructure – A Survey," Review of Network Economics, De Gruyter, vol. 13(3), pages 227-270, September.
    2. Georgios Petropoulos & Bert Willems, 2016. "Providing efficient network access to green power generators- A long-term property rights perspective," Working Papers 17317, Bruegel.
    3. Alleman, James & Rappoport, Paul, 2014. "Regulation of Latin American's Information & Communications Technology (ICT) Sector: An empirical analysis," 20th ITS Biennial Conference, Rio de Janeiro 2014: The Net and the Internet - Emerging Markets and Policies 106842, International Telecommunications Society (ITS).
    4. Krämer Jan & Vogelsang Ingo, 2016. "Co-Investments and Tacit Collusion in Regulated Network Industries: Experimental Evidence," Review of Network Economics, De Gruyter, vol. 15(1), pages 35-61, March.
    5. Georgios Petropoulos & Bert Willems, 2016. "Providing efficient network access to green power generators- A long-term property rights perspective," Working Papers 17317, Bruegel.
    6. Arthur Schram & Aljaž Ule, 2024. "Regulatory independence may limit electoral holdup but entrench capture," Public Choice, Springer, vol. 198(3), pages 403-425, March.
    7. Christoph Engel & Klaus Heine, 2017. "The dark side of price cap regulation: a laboratory experiment," Public Choice, Springer, vol. 173(1), pages 217-240, October.
    8. Chloé Coq & Henrik Orzen & Sebastian Schwenen, 2017. "Pricing and capacity provision in electricity markets: an experimental study," Journal of Regulatory Economics, Springer, vol. 51(2), pages 123-158, April.
    9. Petropoulos, Georgios & Willems, Bert, 2020. "Long-term transmission rights and dynamic efficiency," Energy Economics, Elsevier, vol. 88(C).
    10. Gencer, Busra & van Ackere, Ann, 2021. "Achieving long-term renewable energy goals: Do intermediate targets matter?," Utilities Policy, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Infrastructure investment; Experiment; Price cap; Regulatory holiday; C9; L51; L95;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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