The Effect of Monopoly Regulation on the Timing of Investment

Jörg Borrmann and Gert Brunekreeft

No 1, Bremen Energy Working Papers from Bremen Energy Research

Abstract: This paper contributes a theoretical analysis of the effects of regulation on the timing of monopoly investment under certainty in a setting with lumpy investment outlays. We distinguish between price-based regulation and cost-based regulation. To motivate investment, we focus on wear and tear leading to replacement investment and on demand growth resulting in expansion investment. For replacement investment, price-based regulation may work just fine, if properly applied, but it does not work well for expansion investment. Cost-based regulation accelerates investment compared to price-based regulation, but this may not always be effcient.

Pages: 29 pages
Date: 2010-02
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Citations: View citations in EconPapers (5)

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Working Paper: The Effect of Monopoly Regulation on the Timing of Investment (2011)
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