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Structural alternatives of the gas transportation organization through an insulated pipeline

Andrey Shastitko, Alexander Kurdin () and I. Filippova
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I. Filippova: Lomonosov Moscow State University, Moscow, Russia

Journal of the New Economic Association, 2020, vol. 47, issue 3, 128-156

Abstract: Regulation of natural monopolies implies strict adherence to the legislation that does not take into account the variety of circumstances of activities and the possible transactions organization options. The litigation between the "Rosneft" and "Sakhalin Energy" companies about the access to the gas pipeline, which connects the gas field in the North of the Sakhalin Island with the liquefied natural gas (LNG) plant in the Southern part of the Island, is analyzed. It is shown that consideration of a broader range of institutional alternatives of the gas transportation organization through an insulated pipeline is necessary. The basis of the regulator decisions is the existence of market for gas transportation services, which in fact is not (and should not be) the default option. An approach to such situations analysis is proposed, it allows covering a wide range of institutional alternatives that could provide a higher level of social welfare. The Grossman-Hart model of incomplete contracts and its verification on real data is used for the demonstration that a simple decision to allow an isolated pipeline access, when the participants of the transaction are independent, can lead to a decrease of the public welfare, compared with alternatives involving integration.

Keywords: pipelines; incomplete contracts theory; Grossman-Hart model; antitrust regulation; institutional alternatives (search for similar items in EconPapers)
JEL-codes: L14 L95 K23 D02 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.31737/2221-2264-2020-47-3-6

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