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Use of long-term auctions for network investment

Author

Listed:
  • Tanga McDaniel

    (Department of Applied Economics Cambridge, UK)

  • Karsten Neuhoff

    (Department of Applied Economics Cambridge, UK)

Abstract

Short-term auctions for access to entry terminals of the British gas-network appear to successfully allocate scarce resources and capture scarcity rent. Now long-term auctions are being introduced to guide future capacity expansion decisions. In our model the fraction of rights issued in the long-term auction turns out to be a crucial design parameter. Even a “hypothetically” optimal parameter choice can in general only satisfy one of three aims: unbiased provision of capacity, full revelation of private information and minimisation of distortions from network effects. The results suggest that long-term auctions for transmission capacity are not necessarily preferable to regulatory approved capacity expansion.
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Suggested Citation

  • Tanga McDaniel & Karsten Neuhoff, 2002. "Use of long-term auctions for network investment," Working Papers EP04, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:ep04
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    References listed on IDEAS

    as
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    Cited by:

    1. Tanga McDaniel & Andreas Nicklisch, 2004. "Prices as Indicators of Scarcity: An Experimental Study of a Multistage Auction," Working Papers 04-18, Department of Economics, Appalachian State University.
    2. Christopher Decker, 2016. "Regulating networks in decline," Journal of Regulatory Economics, Springer, vol. 49(3), pages 344-370, June.

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    More about this item

    Keywords

    Auctions; Gas; Investment; Networks; Regulation;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing

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