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.

Bulk Properties of a Fermi Gas in a Magnetic Field

We calculate the number density, energy density, transverse pressure, longitudinal pressure and magnetization of an ensemble of spin one-half particles in the presence of a homogeneous background magnetic field. The magnetic field direction breaks spherical symmetry causing the pressure parallel to it. We present explicit formulae appropriate at zero and finite temperature for both charged and uncharged particles including the effect of the anomalous magnetic moment. We demonstrate that the resulting expressions satisfy the canonical relations, omega = -PII and Pperpendicular = PII- MB with M = (delta)(omega)/(delta)(beta) being the magnetization of the system. We numerically calculate the resulting pressure anisotropy for a gas of protons and a gas of neutrons and demonstrate that the inclusion of the anomalous magnetic increase the level of pressure anisotropy in both cases

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.

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.

NGC 7097: the AGN and its mirror, revealed by PCA Tomography

Three-dimensional (3D) spectroscopy techniques are becoming more and more popular, producing an increasing number of large data cubes. The challenge of extracting information from these cubes requires the development of new techniques for data processing and analysis. We apply the recently developed technique of Principal Component Analysis (PCA) Tomography to a data cube from the center of the elliptical galaxy NGC 7097 and show that this technique is effective in decomposing the data into physically interpretable information. We find that the first five principal components of our data are associated with distinct physical characteristics. In particular, we detect a LINER with a weak broad component in the Balmer lines. Two images of the LINER are present in our data, one seen through a disk of gas and dust, and the other after scattering by free electrons and/or dust particles in the ionization cone. Furthermore, we extract the spectrum of the LINER, decontaminated from stellar and extended nebular emission, using only the technique of PCA Tomography. We anticipate that the scattered image has polarized light, due to its scattered nature.Comment: 12 pages, 5 figures, accepted for publication in ApJ Letter

IFU spectroscopy of 10 early type galactic nuclei: II - Nuclear emission line properties

Although it is well known that massive galaxies have central black holes, most of them accreting at low Eddington ratios, many important questions still remain open. Among them, are the nature of the ionizing source, the characteristics and frequencies of the broad line region and of the dusty torus. We report observations of 10 early-type galactic nuclei, observed with the IFU/GMOS spectrograph on the Gemini South telescope, analysed with standard techniques for spectral treatment and compared with results obtained with principal component analysis Tomography (Paper I). We performed spectral synthesis of each spaxel of the data cubes and subtracted the stellar component from the original cube, leaving a data cube with emission lines only. The emission lines were decomposed in multi-Gaussian components. We show here that, for eight galaxies previously known to have emission lines, the narrow line region can be decomposed in two components with distinct line widths. In addition to this, broad H$\alpha$ emission was detected in six galaxies. The two galaxies not previously known to have emission lines show weak H$\alpha$+[N II] lines. All 10 galaxies may be classified as low-ionization nuclear emission regions in diagnostic diagrams and seven of them have bona fide active galactic nuclei with luminosities between 10$^{40}$ and 10$^{43}$ erg s$^{-1}$. Eddington ratios are always < 10$^{-3}$.Comment: 16 pages, 9 figures, accepted for publication in MNRA