Regulation of network infrastructure investments: An experimental evaluation

Bastian Henze, Charles Noussair, Bert Willems

Research output: Contribution to journalArticlepeer-review

11 Scopus citations

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. The setting is one in which network users can benefit from acting strategically, and are better informed than the network operator about demand growth. We find that the regulatory holiday creates an incentive to underinvest relative to optimal levels. Long term contracts also fail to improve on single price-cap regulation, and may reduce investment by providing noisier signals about future demand.

Original languageEnglish (US)
Pages (from-to)1-38
Number of pages38
JournalJournal of Regulatory Economics
Volume42
Issue number1
DOIs
StatePublished - Aug 2012
Externally publishedYes

Keywords

  • Experiment
  • Infrastructure investment
  • Price cap
  • Regulatory holiday

ASJC Scopus subject areas

  • Economics and Econometrics

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