Determining the Optimal Length of Regulatory Guarantee: A Length‐Of‐Contract Auction

9 Pages Posted: 25 Oct 2017

See all articles by Thomas Greve

Thomas Greve

University of Cambridge

Michael G. Pollitt

University of Cambridge - Judge Business School

Date Written: October 2017

Abstract

We present an auction design to be used in the area of procurement that allows the length of the regulatory funding period to be determined via an auction. It allows bidders to submit bids against a payment for periods of varying lengths, say 25 and 30 years, instead of a fixed 20‐year contract. This can be desirable for securing more favourable terms in financial markets. It yields efficiency and delivers the optimal length of contract, defined as where social value is maximised. The auction is applicable to any infrastructure investment such as energy, transportation or any area that uses contracts.

Suggested Citation

Greve, Thomas and Pollitt, Michael G., Determining the Optimal Length of Regulatory Guarantee: A Length‐Of‐Contract Auction (October 2017). The Economic Journal, Vol. 127, Issue 605, pp. F325-F333, 2017, Available at SSRN: https://ssrn.com/abstract=3058403 or http://dx.doi.org/10.1111/ecoj.12405

Thomas Greve (Contact Author)

University of Cambridge

Michael G. Pollitt

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 (0) 1223 339615 (Phone)
+44 (0) 1223 339701 (Fax)

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