Journal of Regulatory Economics

, Volume 42, Issue 1, pp 1–38 | Cite as

Regulation of network infrastructure investments: an experimental evaluation

Open Access
Original Article

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.

Keywords

Infrastructure investment Experiment Price cap Regulatory holiday 

JEL Classification

C9 L51 L95 

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Copyright information

© The Author(s) 2012

Authors and Affiliations

  1. 1.Department of Economics, Tilec, CentERTilburg UniversityTilburgThe Netherlands
  2. 2.Department of Economics, CentERTilburg UniversityTilburgThe Netherlands

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