EconPapers    
Economics at your fingertips  
 

Rate-of-return regulation to unlock natural gas pipeline deployment: insights from a Mozambican project

F. Perrotton and Olivier Massol

Working Papers from Department of Economics, City University London

Abstract: This paper examines the deployment of a natural gas pipeline in a developing region where the rate-of-return (RoR) regulation has been implemented to attract investment. We assume that the pipeline firm considers the proven demand emanating from a few large industrial sites but ignores the eventual rise of other domestic-oriented uses. We first assess the magnitude of the overcapitalization generated ex ante at the planning stage by the application of RoR regulation (i.e., the Averch-Johnson effect). We then analyze the ex-post situation when the enlarged domestic demand materializes. We prove that the allowable rate of return can be set to obtain ex ante the degree of overcapitalization needed ex post to serve the enlarged demand in a costefficient manner. We finally discuss whether RoR regulation can fulfill two public policy objectives: optimally building ahead of proven demand and protecting society from monopoly prices.

New Economics Papers: this item is included in nep-ene and nep-reg
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://openaccess.city.ac.uk/20240/1/Massol%20-%20Economics-DP-18_05.pdf

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:cty:dpaper:18/05

Access Statistics for this paper

More papers in Working Papers from Department of Economics, City University London Department of Economics, Social Sciences Building, City University London, Whiskin Street, London, EC1R 0JD, United Kingdom,. Contact information at EDIRC.
Bibliographic data for series maintained by Research Publications Librarian ().

 
Page updated 2019-04-20
Handle: RePEc:cty:dpaper:18/05