Regulation and the Option to Delay

This paper examines a simple two-period model of an investment decision in a network industry characterized by demand uncertainty, economies of scale and sunk costs. In the absence of regulation we identify the minimum price that an unregulated monopolist demands to bear the demand uncertainty and invest early, that is, the price that incorporates the value of the option to delay. In a regulated environment, we show that in the absence of downstream competition and when the regulator cannot commit to ex-post demand contingent prices, a regulated price that incorporates the option to delay is the minimum price that ensures early investment. Furthermore, when the regulator has a preference for early investment, the option to delay price generates higher welfare than other forms of price regulation. We also show that when the vertically integrated network provider is required to provide access to downstream competitors, and the potential entrant is less efficient than the incumbent, an access price that incorporates the option to delay generates the same investment level output as and higher overall welfare than an unregulated industry that is not required to provide access. By contrast, under the same market conditions an ECPR-based access price generates the same overall welfare than an unregulated industry. Moreover, when the potential entrant is more efficient than the incumbent, an Option to Delay Pricing Rule generates the same investment level output as and (weakly) higher overall welfare than the Efficient Component Pricing Rule (ECPR). In addition, the option-to-delay-based access price is (weakly) lower than the ECPR-based access price.

Price Regulation and the Cost of Capital

This paper investigates how price regulation under moral hazard can affect a regulated firm’s cost of capital. We consider stylised versions of the two most typical regulatory frameworks that have been applied over the last decades by regulators: Price Cap and Cost of Service. We show that there is a trade-off between lower operational costs and a higher cost of capital under Price Cap regulation and higher operational costs and lower cost of capital under Cost of Service regulation. As a result, when the extent of moral hazard is not significant, Price Cap regulation generates lower welfare than the Cost of Service regulation.

The Contamination Problem in Utility Regulation

This paper formally examines the implications of a utility’s diversification into an unregulated industry. In our framework, the utility is the most efficient provider in the unregulated industry (up to a particular capacity) and, as such, there is no question about the desirability of allowing it to operate in that market. Nevertheless, the risk faced by a diversified utility is greater than the risk faced by a utility that operates only in a regulated market. This additional risk can potentially affect the diversified utility’s credit rating and, therefore, increase the cost of capital for the regulated business that will be recovered from ratepayers. We show that by allowing a regulated firm to diversify into an unregulated market, the regulator faces a trade-off: a lower cost in the unregulated market versus a higher cost in the regulated market. If the regulator only cares about welfare in the regulated market, then a ringfencing requirement is optimal subject to implementation costs not being substantial. Of course, the ring-fencing requirement effectively prevents the firm from achieving a lower cost in the unregulated market. Therefore, if the regulator cares about welfare in both regulated and unregulated markets, ring-fencing may no longer be optimal.

Contemporaneous Carma Modelling With Applications

This thesis presents a comprehensive study of the statistical properties of the contemporaneous Autoregressive Moving-Average (CARMA) model. The research results constitute a more general framework than previously available for the analysis of many actual sets of time series data. It is shown in the thesis that the joint estimation is asymptotically efficient. For the case of the CAR(1) model, asymptotic theory and small sample simulation show that the gain in efficiency over univariate estimation can be in excess of 50%. A computationally efficient procedure to obtain the joint estimation of the parameters together with a useful estimation procedure for the case of unequal sample sizes is also given in the thesis. Applications in hydrology are presented, where the physical restrictions of the system often suggest that a CARMA model would be appropriate. Test statistics for two important hypotheses are also considered: (a) whether a joint set of univariate models will suffice and (b) whether (beta)(,h) = (beta), or otherwise, where (beta)(,h) is the vector of parameters for the series h

Price Regulation and Investment: A Real Options Approach

This paper examines a three-period model of an investment decision in a network industry characterized by demand uncertainty, economies of scale and sunk costs. In the absence of regulation we identify the market conditions under which a monopolist decides to invest early as well as the underlying overall welfare output. In a regulated environment, we first consider a monopolist facing no downstream competition but subject to a price cap on the downstream retail (final good) market. We identify the welfare-maximising regulated prices using the unregulated market output as a benchmark. In particular, we show that the optimal regulation depends on market conditions (that is, the nature of demand) and there are three possible outcomes: (i) price regulation does not improve welfare; (ii) regulated prices include an option to delay value and provide a positive payoff to the firm; and (iii) regulated prices yield a zero payoff to the firm. Second, we consider a vertically integrated network provider that is required to provide access to downstream competitors. We show that when the regulator has only one instrument, namely the access price, an option-to-delay pricing rule generates (weakly) higher welfare than the Efficient Component Pricing Rule (ECPR), except under very specific conditions.

El relato de la Pasión en Marcos: Claves de interpretación

Taking into account the temporal data of Mark’s text, it will be probed in our research that the whole Passion narrative from the Last Supper of Jesus until his burial takes place on East Day. From a historical point of view, this evidence raises important problems and, moreover, it disagrees with the date that John’s Gospel sets for Jesus’ death (Easter Eve). In my opinion, the best way to resolve these historical problems and this disagreement with the Fourth Gospel consists in a correct interpretation of Mark’s narrative. It must be considered as a theological construction that looks to contrast Jesus’ Easter with Jewish Easter, and not as a historical reconstruction."El relato de la Pasión en Mc: ¿una narración de los acontecimientos finales de la vida de Jesús? ¿O una interpretación teológica de los mismos?". ¿Qué pretendo en este trabajo? Ir siguiendo los datos temporales que señala el evangelista en su relato para demostrar que, tras un tríptico introductorio (Mc 14,1-11), los acontecimientos que van desde los preparativos de la Última Cena hasta la sepultura de Jesús (Mc 14,22-15,47), transcurren desde la víspera de la Pascua hasta el fin de la misma. Esos acontecimientos se narran en dos secuencias (Mc14,12-26 y Mc 14,32-15,47), unidas entre sí por un pasaje que sirve de puente entre ambas (Mc 14,27-31). Si leemos esas secuencias como una sucesión ininterrumpida de acontecimientos, desde el punto de vista histórico, el relato resulta inverosímil, porque es de sobra conocido que en el mundo judío no podía celebrarse ningún juicio, ni tampoco ejecutar o enterrar a alguien, en un día tan solemne como el de Pascua. Los contrastes y los paralelos existentes entre ambas secuencias, indican, a mi juicio, que no han de ser entendidas como sucesivas en el tiempo, sino como superpuestas: la primera (los preparativos de la Cena y su celebración) anticipa y explica teológicamente lo narrado en la segunda (arresto, condena, muerte y sepultura de Jesús). El hecho de que Mc englobe todos los acontecimientos en el día de Pascua se debe a que quiere contraponer a la pascua judía la Pascua de Jesús, a la liberación de la antigua alianza la de la nueva y definitiva de Jesús. Se trata de un artificio literario mediante el cual el evangelista pretende dar unidad a todo lo acaecido al final de la vida de Jesús

Teaching Latin America in Tehran

This is an Author’s Original Manuscript of an article published by Taylor & Francis Group in NACLA Report on the Americas, 2018. Available online: https://www.tandfonline.com/doi/full/10.1080/10714839.2018.144859

A Posteriori Error Estimates for Surface Finite Element Methods

Problems involving the solution of partial differential equations over surfaces appear in many engineering and scientific applications. Some of those applications include crystal growth, fluid mechanics and computer graphics. Many times analytic solutions to such problems are not available. Numerical algorithms, such as Finite Element Methods, are used in practice to find approximate solutions in those cases. In this work we present L2 and pointwise a posteriori error estimates for Adaptive Surface Finite Elements solving the Laplace-Beltrami equation −△Γ u = f . The two sources of errors for Surface Finite Elements are a Galerkin error, and a geometric error that comes from replacing the original surface by a computational mesh. A posteriori error estimates on flat domains only have a Galerkin component. We use residual type error estimators to measure the Galerkin error. The geometric component of our error estimate becomes zero if we consider flat domains, but otherwise has the same order as the residual one. This is different from the available energy norm based error estimates on surfaces, where the importance of the geometric components diminishes asymptotically as the mesh is refined. We use our results to implement an Adaptive Surface Finite Element Method. An important tool for proving a posteriori error bounds for non smooth functions is the Scott-Zhang interpolant. A refined version of a standard Scott-Zhang interpolation bound is also proved during our analysis. This local version only requires the interpolated function to be in a Sobolev space defined over an element T instead of an element patch containing T. In the last section we extend our elliptic results to get estimates for the surface heat equation ut − △Γ u = f using the elliptic reconstruction technique