Pricing Access: Forward versus Backward Looking Cost Rules

Graeme Guthrie, John Small and Julian Wright

No 33482, Working Paper Series from Victoria University of Wellington, School of Economics and Finance

Abstract: Regulators across many different jurisdictions and industries have recently adopted the practice of setting access prices based on the current costs of providing the relevant facilities. Though widely regarded as being efficient, this practice has not been formally analyzed. Our analysis shows that given stochastic costs, forward looking access prices retard investment and are dominated by access prices determined by historic cost whenever investment is desired, unless the cost of investment is trending upwards with low volatility.

Keywords: Access prices; Cost rules (search for similar items in EconPapers)
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwecf:33482

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