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Regulation of Network Infrastructure Investments: An Experimental EvaluationBastian HenzeTilburg University - Department of Economics - CentER & TILEC Charles N. NoussairTilburg University Bert WillemsTilburg University - Department of Economics - CentER & TILEC March 21, 2011 TILEC Discussion Paper No. 2011-019 CentER Discussion Paper No. 2011-035 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. We find that the price cap regulation outperforms the regulatory holiday as the latter creates an incentive to underinvest relative to optimal levels. Long term contracts also fail to improve on single price-cap regulation, and can provide more noisy signals about future demand and thus reduce investment.
Number of Pages in PDF File: 38 Keywords: Infrastructure Investment, Experiment, Price Cap, Regulatory Holiday JEL Classification: C9, L51, L95 working papers seriesDate posted: March 25, 2011 ; Last revised: March 31, 2011Suggested CitationContact Information
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