Access Regulation and the Timing of Infrastructure Investment
26 Pages Posted: 22 Apr 1998
Date Written: September 27, 1997
Abstract
This paper examines infrastructure investment incentives under a system of "regulation by negotiation." Abstracting away from the competitive implications of alternative access regimes, we demonstrate that an appropriately specified access pricing rule can induce private firms to choose to invest in infrastructure at a socially optimal time. This is true even in environments where the access seeker can feasibly duplicate the facility. The optimal regulatory regime allocates investments to the access provider and seeker based on their relative use-values of the facility. It is superior to an unregulated environment because it commits firms ex ante to an access charge that influences the investment timing choice in an optimal matter. In addition, we demonstrate that when the time that acccess is sought is flexible both replacement and historical cost asset valuation methodologies can lead to optimal investment incentives.
JEL Classification: C78, L40, L50
Suggested Citation: Suggested Citation