Incentive Regulatory policies: The Case of Public Transit Systems in France

We assess the empirical relevance of the new theory of regulation, using a principal-agent framework to study the regulatory schemes used in the French urban transport industry. Taking the current regulatory schemes as given, the model of supply and demand provides estimates for the firms’ inefficiency, the effort of managers, and the cost of public funds. It allows us to derive the first-best and second-best regulatory policies for each network and compare them with the actual situation in terms of welfare loss or gain. Fixed-price policies lie between fully informed and uninformed second-best schemes. Cost-plus contracts are dominated by any type of second-best contract. From these results, we may conjecture that fixed-price contracts call for better-informed regulators.Publicad

Congestion pricing, infrastructure investment and redistribution

We study congestion pricing by a government that has redistributive concerns, in the presence of optimal income taxation. Individuals differ in (unobservable) earning ability and consumption technology for commodities using a congestible network (e.g. roads, Internet). We find, assuming separable preferences, that when efficiency of consumption technology is either invariant or postively correlated with earning ability, low ability individuals should face higher marginal congestion charges than high ability ones. Moreover, reducing congestion (by raising charges or expanding network capacity) enables government to increase redistribution. We also find that means tested congestion pricing may be necessary to implement the second-best allocation.congestion pricing; income taxation; redistribution; infrastructure investment

A retail benchmarking approach to efficient two-way access pricing

We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in linear prices, we show that there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of the underlying demand conditions. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under linear prices but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under this class of rules. Therefore, the regulator (or the competition authority) can choose one among the rules to pursue additional objectives such as consumer surplus, network coverage or investment: for instance, we show that both static and dynamic e±ciency can be achieved at the same time.Networks, Access Pricing, Interconnection, Competition Policy, Telecommunications, Investment

A Retail Benchmarking Approach to Eficient Two-Way Access Pricing

We study a retail benchmarking approach to determine access prices for interconnected networks. Instead of considering fixed access charges as in the existing literature, we study access pricing rules that determine the access price that network i pays to network j as a linear function of the marginal costs and the retail prices set by both networks. In the case of competition in linear prices, we show that there is a unique linear rule that implements the Ramsey outcome as the unique equilibrium, independently of the underlying demand conditions. In the case of competition in two-part tariffs, we consider a class of access pricing rules, similar to the optimal one under linear prices but based on average retail prices. We show that firms choose the variable price equal to the marginal cost under this class of rules. Therefore, the regulator (or the competition authority) can choose one among the rules to pursue additional objectives such as consumer surplus, network coveraNetworks, Access Pricing, Interconnection, Competition

On-Net/Off-Net Price Discrimination and 'Bill-and-Keep' vs. 'Cost-Based' Regulation of Mobile Termination Rates

This paper surveys the recent literature on competition between mobile network operators in the presence of call externalities and network effects. It shows that the regulation of mobile termination rates based on “long-run incremental costs” increases networks’ strategic incentives to inefficiently set high on-net/off-net price differentials, thus harming smaller networks and new entrants. The paper argues in favor of a “bill-and-keep” system for mobile-to-mobile termination, and presents international evidence in support of this conclusion.mobile termination, network effects, call externalities, bill-and-keep

A Dynamic Incentive Mechanism for Transmission Expansion in Electricity Networks: Theory, Modeling, and Application

We propose a price-cap mechanism for electricity-transmission expansion based on redefining transmission output in terms of financial transmission rights. Our mechanism applies the incentive-regulation logic of rebalancing a two-part tariff. First, we test this mechanism in a three-node network. We show that the mechanism intertemporally promotes an investment pattern that relieves congestion, increases welfare, augments the Transco´s profits, and induces convergence of prices to marginal costs. We then apply the mechanism to a grid of northwestern Europe and show a gradual convergence toward a common-price benchmark, an increase in total capacity, and convergence toward the welfare optimum.Electricity transmission expansion, incentive regulation

A simple access pricing rule to achieve the Ramsey outcome for interconnected networks

This paper considers a general and informationally efficient approach to determine the optimal access pricing rule for interconnected networks. It shows that there exists a simple rule that achieves the Ramsey outcome as the unique equilibrium when networks compete in linear prices without network-based price discrimination. The approach is informationally efficient in the sense that the regulator is required to know only the marginal cost structure, i.e. the marginal cost of making and terminating a call. The approach is general in that access prices can depend not only on the marginal costs but also on the retail prices, which can be observed by consumers and therefore by the regulator as well. In particular, I consider the set of linear access pricing rules which includes any fixed access price, the Efficient Component Pricing Rule (ECPR) and the Modified ECPR as special cases. I show that in this set, there is a unique rule that implements the Ramsey outcome as the unique equilibrium independently of the underlying demand conditions.Networks, Access Pricing, Interconnection, Competition Policy

Travel Demand Model with Heterogeneous Users and Endogenous Congestion: An application to optimal pricing of bus services

We formulate and estimate a structural model for travel demand, in which users have hetero- geneous preferences and make their transport decisions considering the network congestion. A key component in the model is that users have incomplete information about the preferences of other users in the network and they behave strategically when they make transportation decisions (mode and number of trips). Therefore, the congestion level is endogenously determinate in the equilibrium of the game played by users. For the estimation, we use the first order conditions of the users' utility maximization problem to derive the likelihood function and apply Bayesian methods for inference. Using data from Santiago, Chile, the estimated demand elasticities are consistent with results reported in the literature and the parameters confirm the effect of the congestion on the individuals' preferences. Finally, we compute optimal nonlinear prices for buses in Santiago, Chile. As a result, the nonlinear pricing schedule produces total benefits slightly greater than the linear pricing. Also, nonlinear pricing implies fewer individuals making trips by bus, but a higher number of trips per individual.