On the receiver pays principle

This paper extends the theory of network competition between telecommunications operators by allowing receivers to derive a surplus from receiving calls (call externality) and to affect the volume of communications by hanging up (receiver sovereignty). We investigate the extent to which receiver charges can lead to an internalization of the calling externality. When the receiver charge and the termination (access) charge are both regulated, there exists an e±cient equilibrium. Effciency requires a termination discount. When reception charges are market determined, it is optimal for each operator to set the prices for emission and reception at their off-net costs. For an appropriately chosen termination charge, the symmetric equilibrium is again effcient. Lastly, we show that network-based price discrimination creates strong incentives for connectivity breakdowns, even between equal networks.Networks, interconnection, competition policy

The politics of government decision making : regulatory institutions

Public decision makers are given a vague mandate to regulate industries. Restrictions on their instruments or scope of regulation affect their incentives to identify with interest groups and the effectiveness of supervision by watchdogs. This idea is illustrated in the context of the regulation of a natural monopoly. Much of the theoretical literature has assumed that a benevolent regulator is prohibited from operating transfers to the firm and maximizes social welfare subject to the firm's budget constraint. The tension between the assumptions of benevolence and of restrictions on instruments in such models leads us to investigate the role played by the mistrust of regulators in the development of this institution. We compare two mandates: average cost pricing (associated with the possibility of transfers). The regulator may identify with the industry, but a regulatory hearing offers the advocacy groups (watchdogs) an opportunity to alter the proposed rule making. The comparison between the two mandates hinges on the dead-weight loss associated with collusion and on the effectiveness of watchdog supervision.Supported by the Ford Foundation, the Pew Charitable Trust, the Guggenheim Foundation, the Center for Energy Policy Research at MIT, the National Science Foundation and the French Ministere de l'Education Nationale

Auction design and favoritism

The theory of auctions has ignored the fact that often auction designers, not the principal, design auctions. In a multi attribute auction, the auction designer may bias his subjective evaluation of quality or distort the relative weights of the various attributes to favor a specific bidder, an ancient concern in the procurement of weapons, in the auctioning of government contracts and in the purchase of electricity by regulated power companies. The paper analyzes the steps to be taken to reduce the possibility of favoritism. It is first shown that in the absence of favoritism, quality differentials among firms are more likely to be ignored if the auction designer has imperfect information about the firm's costs. Second, if the auction designer may collude with only one bidder, the other bidders should be chosen if they are as least as efficient as the former bidder, and no hard information about quality differentials is released by the auction designer that would justify fair discrimination in favor of the former bidder. Last, if the auction designer can collude with any bidder, the optimal auction tends to a symmetric auction in which quality differentials are ignored. The possibility of favoritism reduces the auction designer's discretion and makes the selection process focus on non-manipulable (monetary) dimensions of bids.Supported by the Pew Charitable Trust, the Ford Foundation, and the MIT Energy Lab

Managerial switching and myopia

Pew Charitable Trust, the Center for Energy Policy Research at MIT and the National Science Foundatio

Regulatory quality and performance in EU network industries: Evidence on telecommunications, gas and electricity

This article provides empirical evidence on ex ante and ex post indicators of regulatory quality and the relationship between those indicators and market performance in liberalised EU-15 network industries. It finds a low level of regulatory independence and competence, a high level of cross-country variations in regulatory quality, and widespread absence of correlation between ex ante regulatory quality and ex post performance indicators. On the basis of these findings, it suggests that the design of national regulatory agencies (NRAs) in Europe is not optimal and may be conducive to regulatory ineffectiveness or outright regulatory failure. Nevertheless, the existence and strengthening of EU-level regulators could enable EU member states to reduce the risk of regulatory failure by encouraging coordination and adoption of best practice