Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103341
Authors: 
Borrmann, Jörg
Brunekreeft, Gert
Year of Publication: 
2011
Series/Report no.: 
Bremen Energy Working Papers 09
Abstract: 
This paper contributes a theoretical analysis of the effects of different types of regulation on the timing of monopoly investment in a setting with lumpy 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 them. To motivate investment, we focus on wear and tear leading to replacement investment and on demand growth resulting in expansion investment. Our main conclusion is that cost-based regulation accelerates investment compared to price-based regulation.
Subjects: 
Cost-based regulation
Expansion investment
Investment timing
Monopoly
Price-based regulation
Replacement investment
JEL: 
D42
G00
L51
Document Type: 
Working Paper

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