Springer Science and Business Media LLC

Price-cap regulation is widely applied to network industries. However, regulators often encounter the problem of asymmetric information on efficient costs. Benchmarking can help reduce this problem. We present a benchmarking analysis, conducted for an Australian regulator, that derives measures of efficiency for Australian gas distributors relative to U.S. counterparts. Several techniques, such as data envelopment analysis and stochastic frontier analysis, are used to ensure that our measures are robust to methodology choice. We conclude with a discussion of how the regulator used the benchmarking results, along with other information, to help it determine appropriate price caps.

This paper analyzes the nature of and justification for the Universal Service Obligation (USO) and its relationship to the Reserved Area for Postal Service. This is motivated by problems of funding the USO in the face of increasing competition in the postal sector. After reviewing various approaches to defining and funding the USO, we develop a model to consider the optimal scope of both the Reserved Area and the USO. The model assumes an incumbent postal provider and potential entrants. The incumbent is guaranteed a monopoly franchise for services in its Reserved Area R and offers services in a possibly larger set of services U at uniform prices. All services not in R face competition from entrants. We characterize the welfare-optimal scope of R and U subject to a breakeven constraint for the incumbent. Implications for USO policy are discussed in light of the results of the analysis.

We investigate the influence of a judge’s objective function on the type of sanctions used for enforcing environmental standards. We focus on the difference between monetary and non-monetary penalties. We examine the extent to which judges take social costs of sanctions into account when making judgments in court in the context of environmental violations. We also conduct an empirical analysis to test the main findings of the theoretical model using court data from several Belgian jurisdictions. We find that besides minimizing environmental damages judges also take social costs of sanctions into account in their decision-making.

This paper analyzes the networking aspect in telecommunication services and the recent divestiture and increased competitiveness of the industry. The product considered is the right to access the network. The utility of a consumer from having access to a network depends on the network's quality, defined by the number of other local and long-distance consumers which can be reached. Network services are provided in two layers; On the lower layer consumers within a local access and transport area (LATA) are connected to a central office which provides the basic switching facility for local telecommunication. On the upper layer, LATAs are connected together by an interLATA carrier, to enable long distance communication from different localities. It is shown that relative to the choices of an unconstrained monopolist, larger networks at both layers may be obtained by imposing quality controls, while price controls may have the opposite effect. A divestiture policy in which all local carriers are connected to a single long distance carrier is likely to reduce the quality of services at both layers. Introducing competition among long-distance carriers further reduces the quality of long distances services but may improve the local service.

This paper combines an engineering process model of the cost of local exchange telecommunications firms with an analytical model of optimal incentive regulation (with ex post cost observability), to study empirically the properties of the optimal regulatory mechanism. Relying on detailed properties of the cost function, we examine three issues: (i) the extent of natural monopoly when informational rents associated with regulation are taken into account; (ii) the extent of incentive correction, which expresses the divergence of pricing under the optimal mechanism from optimal pricing under complete information; (iii) the implementation of optimal regulation through a menu of linear contracts. Our findings are that, for fixed territory, strong economies of scale allow local exchange telecommunications to retain monopoly characteristics even when the (informational) costs of regulation are properly accounted for, the incentive correction term is small in magnitude, and that optimal regulation can be well approximated through relatively simple linear contracts.

We examine the optimal regulatory policy for a risk-averse firm when the firm is imperfectly informed about its efficiency parameter for a project at the time of contracting. The firm’s risk aversion shifts the optimal regulatory policy from a fixed-price contract to a cost-plus contract. The optimal regulatory policy entails undereffort by an inefficient firm as in Laffont and Tirole (J Polit Econ 94(3):614–641, 1986) and the effort distortion increases as the firm becomes more risk-averse. Further, the regulator benefits from sequential contracting with the firm where the firm chooses contract terms gradually as it acquires information, albeit the benefit diminishes as the firm becomes more risk-averse.

We study experimental multi-unit uniform and discriminatory auctions with demand uncertainty, motivated by the ongoing debate about market design in the electricity industry. We study the effect of asymmetric demand-information in the two auction institutions. In our treatment condition some sellers have less information than in our baseline conditions. In both conditions transaction prices and price volatility are not significantly different under the two auction institutions. However, under asymmetric information discriminatory auctions are significantly less efficient. These results are not in line with typical arguments made in favor of discriminatory pricing in electricity industries; namely, lower prices and less volatility.

Cable television reregulation in October 1992 did succeed in constraining subscriber bills about 9% below trend by October 1994. Yet, the growth rate of basic cable television subscribership fell sharply during the period of rate reductions. Only when real rates began rising in the period following October 1994—after an explicit relaxation of controls—did reliable industry output measures return to the pre-regulation growth trend. These data suggest that rate regulation becomes substantially less viable as the complexity of the regulated good increases.