Regulatory Failure: Time for a New Policy Paradigm

Regulation is presumed to be designed to avoid (potential) market failures,usually because of firms' market power, the consequence of which leads to a decrease in economic welfare. However, the cost of regulation may outweigh any effects policy makers have on the firm due to administrative costs, regulatory capture and other effects that have been addressed by others. More importantly, policy makers have been using the wrong models to guide their decisions, with a major impact on the investment incentives of firms, a misallocation of resources and a lowering of social welfare. As policy makers misread economic theory, they produce results worse than those they are attempting to correct. Thus, these distorting effects are equally as bad, or worse than, the market failure regulators hoped to ameliorate. However, this need not be the case. By concentration on dynamic models, rather than the simple static models on which policy makers have focused, it is possible to improve economics welfare and obtain results that at least are better than the costs associated with current regulatory practices. Ofcom appears to be moving in this direction. Will other policy makers learn from Ofcom? This paper shows some of the failures of the current model and sets forth some of the necessary steps to make improvements. However, it is unclear whether the institutional structures will allow for such a departure from the current paradigm.competition; economic dynamics; neoclassical economics; pricing policy; regulation

Mobile Money: Implications for Emerging Markets

Developing countries lack effective infrastructure: transportation, telecommunications, financial systems, etc. The positive economic impact of the improved telecommunications infrastructure has been demonstrated. The ability of microfinance has been shown to stimulate and enhance economic activity. Now a hybrid of the technologies has begun to emerge: mobile money. The ubiquity of cell phone service, coupled with the notion of microfinance offers the possibility of service in remote areas of a country where it would be otherwise economically unsustainable to provide banking services. Mobile money has all of the attributes of money including store of value and medium of exchange. This paper addresses the economics and policy issues of mobile money: What are the economics of mobile money? What policy issues does it raise? Is it a threat to the traditional banking system? How should it be regulated? What can we learn from the microfinance literature? Do we have empirical evidence of its impact on growth and development?Competition, economic dynamics, neoclassical economics, pricing policy, regulation.

A pricing proposal: regulation, nonlinear pricing and self-selecting tariffs

In this post, James Alleman focuses on the negative welfare effects of the typical pricing structures found in the ICT sector. To enhance welfare, the author suggests, regulators should require ICT firms to bill their consumers the “best” price structure for their usage ex post, instead of making consumers to select a package ex ante. It is suggested that this pricing policy would allow society to reap the savings and welfare benefits of nonlinear pricing

Real Options Methodology Applied to the ICT Sector: A Survey

This survey focuses on the application of real options methodology to the information and communications technology (ICT) industries. It examines the development of the methodology to areas as diverse as wireless cell site investments to dynamic pricing issues. In addition to aiding the reader in understanding the breadth of the applications, it demonstrates the importance of the topic. It provides a guide to the reader who is interested in exploring the topic in greater depth.Discounted cash flow, economic methodology, information and communications technology (ICT), investment, investment under uncertainty, options, present discounted value, real options, valuations.

An Investment Criterion Incorporating Real Options

Investment in infrastructure such as the information and communication technology sector requires large, substantial amounts, most of which are sunk or irreversible. Uncertainty of market demand, competition, costs and public policy complicates the investment decision process. This paper provides an investment decisionmaking criterion under uncertainty using (deferred) real options methodology to evaluate if an investment should be made immediately, cautiously, deferred (wait-and-watch), or foregone. A decision-making index d is developed, which is equal to the expectation of net present value (NPV) normalized by its standard deviation. Under a lognormal assumption of the distribution of NPV discounted by risk-free rate, we find the "break-even point" at which the NPV equals the real option value (ROV): d = D* = 0.276. Using the absolute value of D*, one can make sophisticated decisions considering opportunity losses. This new decision index, d, provides a criterion to make investment decisions to capture underlying uncertainty. When making a decision, a manager only has to observe three parameters: expectation of future cash flow, its uncertainty as measured by its standard deviation, and the magnitude of investment. We discuss examples using this criterion and show its value. The criterion is particularly useful when NPV lies near zero or uncertainty is large.Real Options, Decision, Investment, Economic Methodology; Statistical Decision Theory, Criteria for Decision-Making under Risk and Uncertainty.

Trade imbalance in international message telephone services

An econometric model is estimated to identify determinants of trade imbalance in international message telephone services markets. Results indicate that asymmetric market structure is important in explaining bilateral market imbalances for high income country pairs. For low and high income country pairs, GDP per capita is the dominant cause of traffic imbalances. The findings suggest that telecommunications liberalization policies are effective in reducing distortions in international traffic flows and settlement payments. However, liberalization should be accompanied by developmental programmes that enhance income per capita and telecommunications network investment in developing countries. Such programmes may be effective in providing a more equitable distribution of the gains from telecommunications reform across countries.Trade imbalance; international message telephone services

Carbon-Enhanced Cement Clinker

A clinker for use in cement manufacturing includes a cement clinker mixture having crystals of an element that is less electronegative than carbon and carbon bonded to at least a portion of the crystals

Photocatalytic Concrete Pavements: Laboratory Investigation of NO Oxidation Rate Under Varied Environmental Conditions

Concrete pavements containing TiO2 can be used for air pollution control by oxidizing NOX under UV-bearing sunlight. This study employed a bench-scale photoreactor to estimate NO oxidation rates for varied environmental conditions. Rates correlated positively with NO inlet concentration and irradiance and negatively with relative humidity. No correlation occurred with flow rate. A decrease in slab moisture (previously unstudied) positively correlated with NO oxidation rate at 0–2% loss of saturated mass, but negatively correlated at losses greater that 2%. Although prior researchers deemed temperature insignificant, data indicated a positive correlation. Overall, rates ranged from 9.8–64 nmol∙m-2∙s-1

Approximation Assessment of Photocatalytic Air Cleaning Pavements

This paper examines an approximation method to qualitatively assess the air-cleaning performance (i.e., specifically the elimination of aerial nitrogen oxide, NO, released within vehicular exhaust) by full-scale pavements which contain photo-catalytically reactive titanium dioxide under optimal conditions. Two hypothetical road configurations were considered using this method, including both a two-lane, low traffic density (i.e., 4,000 full-day AADT) and a four-lane, moderate traffic density (i.e., 10,000 full-day AADT) design. These options were then comparatively examined on the basis of expected European Union or United States vehicular emission levels. In each case, this method’s day-time-only percentile elimination approximation results were derived using an extrapolation of lab-based specific contaminant elimination rates (i.e., mass NO removed per surface area per time) relative to contaminant release rates which were projected for EU or US vehicular contaminant emission levels. Using this paper’s approximation method, and assuming best-case scenario conditions (i.e., original, un-aged, peak catalytic performance under optimal temperature, relative humidity, etc. conditions), day-timeonly percentile removals in the ~mid-60% to ~90% range were predicted for EU two- and fourlane roadways with low to moderate traffic densities. These EU contaminant elimination approximation percentiles were higher than the actual, observed range (e.g., typically ~mid-10% to ~mid-60% day-time removal percentiles) of published contaminant elimination values which had been measured according to gas-phase contaminant changes during a number of full-scale studies completed at various EU locations and with EU-related vehicle types and emissions. In the case of similar US highway options, this method’s approximated day-time-only elimination percentile results were lower than what was predicted for similar EU road options, with a range of ~30% to ~40%. These latter, lower US road approximations were believed to be related to higher expected US versus EU vehicle emission levels (i.e., by a factor of ~two- to ~three-fold for light and heavy duty vehicles)