 Co-investment, uncertainty, and opportunism:ex-Ante and ex-Post remediesMarc Bourreau, Carlo Cambini, Steffen Hoernig and Ingo Vogelsang Information Economics and Policy, 2021, vol. 56, issue C Abstract: Caused largely by the recent technological changes towards digitalization, infrastructure investment in network industries has become the main issue for regulatory intervention. In this paper, we study the impact of co-investment between an incumbent and an entrant on the roll-out of network infrastructures under demand uncertainty. We show that if the entrant can wait to co-invest until demand is realized, the incumbent’s 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 the entrant from the incumbent, and (ii) risk premia paid ex post by the entrant. 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) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:56:y:2021:i:c:s0167624521000019 DOI: 10.1016/j.infoecopol.2021.100913 Access Statistics for this article Information Economics and Policy is currently edited by D. Waterman More articles in Information Economics and Policy from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.