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The Promotion of Innovation in Regulated Network Industries

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  • Seyed Reza Mirnezami

Abstract

The capital intensive network industries such as electricity and gas delivery infrastructures exhibit natural monopoly characteristics because of their high economy of scale relative to the size of the market. Due to the absence of direct competition in these regulated industries, infrastructure providers hardly undertake the appropriate level of innovation activities to optimise the operation and continuity of their services; a review is provided to show how different countries support innovation in the network industries. As innovation activities are costly and risky undertakings, a relevant query is how to incentivise innovation through economic regulations. This paper models three generic schemes of innovation promotion: individual incentive contracts, competitive innovation fund and cooperative innovation program. We show how each of these schemes affects the firms' incentives for innovation activities. The results confirm the effectiveness of all three schemes. However, implementing an individual incentive contract is information-intensive, while competitive or cooperative schemes do not require an informed regulator. A comparison is provided between the schemes.

Suggested Citation

  • Seyed Reza Mirnezami, 2021. "The Promotion of Innovation in Regulated Network Industries," International Review of Environmental and Resource Economics, now publishers, vol. 15(1-2), pages 137-174, July.
    • Handle: RePEc:now:jirere:101.00000139
    DOI: 10.1561/101.00000139
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    Citations

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    Cited by:

    1. Kasiri, Mohammadreza & Mirnezami, Seyed Reza, 2023. "How can the compensation structure of Iran's natural gas distribution services be modified based on incentive-based regulations?," Energy, Elsevier, vol. 285(C).
    2. Marques, Vítor & Costa, Paulo Moisés & Bento, Nuno, 2022. "Greater than the sum: On regulating innovation in electricity distribution networks with externalities," Utilities Policy, Elsevier, vol. 79(C).

    More about this item

    Keywords

    Electricity networks; regulation; technology; competition; business model; innovation incentive;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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