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Use of Long-term Auctions for Network Investment

By Tanga McDaniel and Karsten Neuhoff

Abstract

Short-term auctions for access to entry terminals of the British gas-network appear to successfully allocate scarce resources and capture scarcity rent. Now long-term auctions are being introduced to guide future capacity expansion decisions. In our model the fraction of rights issued in the long-term auction turns out to be a crucial design parameter. Even a `hypothetically` optimal parameter choice can in general only satisfy one of three aims: Unbiased provision of capacity, full revelation of private information and minimisation of distortions from network effects. The results suggest that long-term auctions for transmission capacity are not necessarily preferable to regulatory approved capacity expansion

Topics: gas, investment, networks, regulation, Classification-JEL: D44, L95, L5, D92, Auctions
Publisher: Faculty of Economics
Year: 2004
OAI identifier: oai:www.repository.cam.ac.uk:1810/311
Provided by: Apollo

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