Response to Peter Monkhouse

The regulation of infrastructure by the ACCC and other economic regulators in Australia is based around net present value estimation techniques. Recently; Monkhouse (2007) suggested that real options valuation would provide better incentives for investment in infrastructure; but did not elucidate how a regulatory system based on real options valuation should operate. This paper endeavours to sketch the outlines of such a system; and finds that it has considerable promise as an alternative to the status quo; provided an appropriate technique for addressing monopoly rents can be developed.Railways; economic regulation

Delegation or abrogation: The impossibility of objective social welfare maximisation by government

A model widely used for decisions which have a public interest element is delegation of parliamentary authority to a bureaucratic agency, within the confines of a legislative framework which directs the relevant agents how social welfare should be maximised within the context of the issue at hand. This is intended to remove the politicisation of decision-making, and allow for an objective approach. However, except in very limited circumstances, it is unlikely that bureaucratic agents will be able to act in this fashion. Using Arrow?s (1950) Impossibility Theorem, this paper outlines why this is the case, and the consequences of delegation

Price cycles in Perth petrol markets: A spectral analysis

Numerous commentators have noted the tendency of retail petroleum prices to cycle. This paper undertakes a formal analysis of petroleum price cycles, using spectral analysis to uncover which cycles are most important, and regression analysis to ascertain what drives that importance

Economic governance of railways in a federation

Until recently, Australia?s State Government-owned railways operated almost entirely within their home states. This has begun to change, in response to the new dynamics unleashed by economic and structural reforms which began in the 1990s. The economic regulatory system that governs third party access to track infrastructure is still a mix of State and Federal regulation, which has lead to calls for greater consistency. However, it is not clear how much centralisation is optimal. This paper examines railway governance from an historical and a functional perspective, and argues that the best approach is not technocratic, but institutional

The productivity of Australia's railways in the 20th century - consequences for a growing, sustainable industry

Railways offer significant potential to provide sustainable transport solutions, particularly for freight, in an environment where climate change is becoming increasingly important. To do this, however, they need to remain competitive with other modes of transport, and this requires productivity growth. The more productive railways can become, the better their competitiveness with other transport modes and the better they can perform their role in sustainable transport for the future. The Planning and Transport Research Centre is currently constructing a database covering the economic aspects of Australia's railways from Federation to the present day. This paper draws upon an early version of this database to calculate total factor productivity indices for Australia's railways, highlighting an important aspect of railway history in Australia. Two indices, allowing comparison within railways across time, and across railways, are constructed. From an analysis of productivity growth through the century and its causes, the paper draws some initial conclusions about policy directions to assist in ensuring the future sustainability of the industry

A cost function for Australia's railways

This paper utilises a unique dataset comprising of a hundred years of Australian railway history to develop a cost function for Australia?s railways. It explores two different functional forms, highlighting the advantages and disadvantages of each, and explores some of the ramifications of the cost models, both in terms of the economics of Australia?s railways and their economic regulation

Is Economic Regulation Possible? Arrow's Impossibility Theorem and the Management of Joint Use Infrastructure

Economic regulation is portrayed as the objective application of clear economic theory to data in order to develop outcomes which overcome the problems associated with natural monopoly in a non-political, unbiased fashion. However, is the appearance of objectivity only skin-deep? This paper argues that it is; that economic regulation is a form of social choice and that the need for subjective assumptions underpinning regulatory forecasts renders this social choice subject to Arrow?s (1950) Impossibility Theorem. The same is true of any public-sector resource allocation process. The paper examines the consequences of this result for economic regulation using railways as a case study, and charts some potential policy options in response

Assessing the costs of a haulage regime

The provision of third-party access to rail infrastructure in WA?s Pilbara region has been a contentious issue over the past decade. The most recent endeavour proposed by the State Government involves a haulage regime, whereby incumbents would be required to haul the wagons of third parties seeking access to the line. This paper explores the likely costs of such a regime on the host railways, by examining the impacts of voluntary haulage regimes on US Class One Railways, where they are well-established. It finds that haulage regimes are a cost effective means for US railways to reduce their haulage costs, and that they thus might play a role in the Pilbara. However, consideration of whole-of-system costs, congestion and appropriate pricing are key issues. This paper explores these issues, and proposes a simple pricing mechanism which would ensure fair, efficient haulage with only very limited regulatory involvement

The value of a network

This paper presents a simple mechanism for quantifying the value which a network createsbased upon the way in which it is connected. The mechanism is grounded in a process of information sharing by nodes and is, in a sense, an extension of Bonacich’s (1972) centrality measure