The timing of monopoly investment under cost-based and price-based regulation

Jörg Borrmann and Gert Brunekreeft

Utilities Policy, 2020, vol. 66, issue C

Abstract: This article contributes a theoretical analysis of the effects of different types of regulation on the timing of monopoly investment in a setting with lumpy capital investment outlays. Concentrating on the case where investment increases the regulatory asset base, we distinguish between price-based regulation and cost-based regulation. Under cost-based regulation, investment triggers a change of regulated prices, whereas, under price-based regulation, investment does not affect prices at all. Focusing on replacement investment due to wear and tear and expansion investment due to demand growth, our main conclusion is that cost-based regulation accelerates investment compared to price-based regulation.

Keywords: Cost-based regulation; Expansion investment; Investment timing; Monopoly; Price-based regulation; Replacement investment (search for similar items in EconPapers)
JEL-codes: D42 G00 L51 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0957178720300965
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:juipol:v:66:y:2020:i:c:s0957178720300965

DOI: 10.1016/j.jup.2020.101102

Access Statistics for this article

Utilities Policy is currently edited by Beecher, Janice

More articles in Utilities Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().