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Regulation of Network Infrastructure Investments: An Experimental Evaluation

TILEC Discussion Paper No. 2011-019

CentER Discussion Paper No. 2011-035

38 Pages Posted: 25 Mar 2011 Last revised: 31 Mar 2011

Bastian Henze

Tilburg University - Department of Economics - CentER & TILEC

Charles N. Noussair

Tilburg University

Bert Willems

Tilburg University - Department of Economics - CentER & TILEC

Date Written: March 21, 2011

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.

Keywords: Infrastructure Investment, Experiment, Price Cap, Regulatory Holiday

JEL Classification: C9, L51, L95

Suggested Citation

Henze, Bastian and Noussair, Charles N. and Willems, Bert, Regulation of Network Infrastructure Investments: An Experimental Evaluation (March 21, 2011). TILEC Discussion Paper No. 2011-019. Available at SSRN: https://ssrn.com/abstract=1791568 or http://dx.doi.org/10.2139/ssrn.1791568

Bastian Henze (Contact Author)

Tilburg University - Department of Economics - CentER & TILEC ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Charles N. Noussair

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Bert Willems

Tilburg University - Department of Economics - CentER & TILEC ( email )

P.O. Box 90153 Room K308
Tilburg, 5000LE
Netherlands
+31134662588 (Phone)

HOME PAGE: http://www.bertwillems.com

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