Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/57259
Authors: 
Neumann, Anne
Rosellón, Juan
Weigt, Hannes
Year of Publication: 
2011
Series/Report no.: 
DIW Discussion Papers 1145
Abstract: 
We propose a merchant-regulatory framework to promote investment in the European natural gas network infrastructure based on a price cap over two-part tariffs. As suggested by Vogelsang (2001) and Hogan et al. (2010), a profit maximizing network operator facing this regulatory constraint will intertemporally rebalance the variable and fixed part of its two-part tariff so as to expand the congested pipelines, and converge to the Ramsey-Boiteaux equilibrium. We confirm this with actual data from the European natural gas market by comparing the bi-level price-cap model with a base case, a no-regulation case, and a welfare benchmark case, and by performing sensitivity analyses. In all cases, the incentive model is the best decentralized regulatory alternative that efficiently develops the European pipeline system.
Subjects: 
regulation
transportation network
investment
Document Type: 
Working Paper

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