Co-Investment, Uncertainty, and Opportunism: Ex-Ante and Ex-Post Remedies

Marc Bourreau, Carlo Cambini, Steffen Hoernig and Ingo Vogelsang

No 8078, CESifo Working Paper Series from CESifo

Abstract: In this paper, we study the impact of co-investment by incumbents and entrants on the roll-out of network infrastructures under demand uncertainty. We show that if entrants can wait to co-invest until demand is realized, the incumbents’ investment incentives are reduced and total coverage can be lower than in a benchmark with earlier co-investment. We consider two remedies to correct these distortions: (i) co-investment options purchased ex-ante by entrants from incumbents, and (ii) risk premia paid ex-post by entrants. We show that co-investment options cannot fully reestablish total coverage, while premia can do so in most cases, though at the cost of less entry. Finally, we show that an appropriate combination of ex-ante and ex-post remedies can improve welfare.

Keywords: co-investment; uncertainty; opportunism; options; risk premia (search for similar items in EconPapers)
JEL-codes: L51 L96 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Co-investment, uncertainty, and opportunism:ex-Ante and ex-Post remedies (2021)
Working Paper: Co-investment, uncertainty, and opportunism:ex-Ante and ex-Post remedies (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8078

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