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Flexibility Versus Completeness in Long Term Contractual Relationships: Contracting Between Utilities and IPP’s

  • Michael A. Crew
  • Keith J. Crocker
Part of the Topics in Regulatory Economics and Policy Series book series (TREP, volume 10)

Abstract

Making relation- (or “transaction-”) specific investments is nothing new for public utilities. Traditionally, the utility invests in the distribution network, such as the wire that connects from the network to the individual subscribers’ premises in the case of telecommunications or electrical supply. While the literature has examined the role of regulation in mitigating problems facing utilities in such a situation (Williamson 1983; Goldberg 1976), less attention has been paid to the problems of suppliers to utilities who have to make relation-specific investments in order to produce the supplied product. Important examples of such suppliers are independent power producers (IPPs) and cogenerators. Both are required to make significant long term relation-specific investment if they are to supply power to the grid, and such long term relationships are governed by contracts which bind the parties together and mitigate surplus-eroding opportunistic behavior. The purpose of this paper is to examine the nature of the contracting relationship between utilities and IPPs, with an emphasis on the appropriate level of contractual completeness to address the hold-up problem.1

Keywords

Efficient Mechanism Repeated Game Incomplete Contract Contract Design Complete Contract 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media New York 1992

Authors and Affiliations

  • Michael A. Crew
  • Keith J. Crocker

There are no affiliations available

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