An Economic Appraisal of Ngai Tipu Whakaritorito: A New Governance Model for Maori Collectives

Interest in the governance of Maori collectives has grown considerably over the past decade as significant settlements have been made between the Crown and various tribes (iwi) under the Treaty of Waitangi and also as Maori collectives take an increasing role in providing social service delivery on behalf of government to Maori communities. Maori collectives pose complex challenges in the design of optimal governance systems given the many overlapping roles and relationships assumed by individual collective members and cultural dimensions of Maori organisation typically based predominantly around lineage and social standing. The Maori Development Ministry Te Puni Kokiri like other agencies argues that the wide range of governance entities currently used by Maori collectives for their various economic social political and cultural activities each have inadequacies that are exposed in the Maori collective context. It has proposed a new governance entity that it claims better meets the requirements of such collectives. This paper briefly describes and analyses the Maori collective governance problem from the perspective of the economics of governance and provides an appraisal of Te Puni Kokiri's proposal in this light. It is argued that the proposed new governance entity offers little more than existing available options and in fact may not be meeting any particular deficit in the governance framework for Maori collectives or otherwise. Standard and cooperative companies are shown to be more suitable for Maori collective governance than often thought. For the Te Puni Kokiri proposal to materially add to the governance options available to Maori collectives it will be important to consider it in the light of forthcoming proposals for assisting Maori collectives to establish their mandate and "voice.

Ownership vs. Regulation in Electricity Reform: The Role of Governance

Electricity reform typically involves little regard to the possibility that customerownership might substitute for the "protections" of state ownership or for investor ownership under regulatory safeguards where market power is a concern. Recognising that regulation is itself costly and that market contracting ownership and regulation are partly substitutable forms of governance this paper argues that state ownership of natural monopolies in electricity distribution (and transmission) is inefficient. Unregulatedcustomer ownership of these activities is superior better aligning monopolist and customer incentives at lower cost. Even unregulated investor ownership of distribution is predicted to better balance the costs of market contracting ownership and regulation than does state ownership. Regulation of customer owned distribution (and transmission) is also shown to be inefficient imposing regulatory costs without compensatory gains. Examples of widespread customer ownership of distribution in New Zealand and of distribution and sometimes transmission in the US illustrates how such ownership has evolved as an effective substitute for regulation. Policy implications are drawn

Valuing the Impact of Climate Change Policies on Forestry

Conventional forest valuation approaches do not account for discretions foresters have in making key irreversible decisions such as when and if to harvest in the light of uncertain future decision variables. Furthermore where they are sufficiently sophisticated as to make explicit forecasts of future valuation parameters such as log prices at harvest date as is the case for discounted cash flow (DCF) analysis they do so with unavoidable imprecision. These shortcomings - as well of those of even less sophisticated methodologies such as cost- or transaction-based valuations - become telling when attempting to assess the impacts of long-term climate change policies on forest values. This paper presents an alternative approach using real options analysis that captures enough complexity to meaningfully model the impacts of climate change policies on forest value while remaining relatively straightforward to implement using Monte Carlo simulation. It shows that foresters' discretions as to when and if to harvest or to convert to non-forest land uses give rise to real options whose value is captured by real options analysis but ignored by conventional forest valuation methodologies. It furthermore shows how forest values differ and conversion rates vary over time depending on which climate change policies or policy uncertainties are assumed. In short Kyoto forests (those first planted after 1989) are more valuable when carbon credits and harvest liabilities under the Kyoto Protocol are devolved by the Crown to their owners. Non-Kyoto forests (those planted before 1990) are more valuable when deforestation liabilities are not devolved to their owners. Current New Zealand policy under which deforestation liabilities are retained by the Crown only within limits encourages the early conversion of Non-Kyoto forests into non-forest uses

Electricity Investment and Security of Supply in Liberalized Electricity Systems

Eliciting generation investment by decentralized profit-seeking private investors is a key goal of electricity liberalization. Debate rages regarding the ability of energy-only electricity markets to ensure that such investors provide generation investment as and when needed to ensure "the lights stay on."Many argue that despite theoretical predictions to the contrary energy-only markets will under-provide the requisite level of investment due to market imperfections that are either inherent (such as consumer resistance to real-time pricing) or imposed (such as price caps to curtail market power). Thenature of these imperfections is increasingly being debated with security of supply formerly being regarded as a public good but later analysis showing this is not the case (or even if it were why that need not necessitate intervention). Greater attention is now being paid to externalities associated with the provision of security of supply but evidence on the importance of such externalities is yet to be presented. Similarly lacking is evidence on the superiority of mechanisms often proposed or implemented to encourage investment in generation capacity where energy-only markets are thoughtto elicit inadequate investment. These mechanisms include capacity payments capacity obligations options-based capacity schemes and capacity subscriptions with load-limiting fuses. While the latter are argued to represent an elegant and non-distortionary means to encourage market-based securityof supply the other alternatives are shown to be conditionally optimal at best and in principle and practice subject to self-defeating features that can be bettered by refinements to energy-only market arrangements (greater demand-side responsiveness) and structural measures (vertical integration ofgeneration and energy retailing). By instead pursuing these alternative measures security of supply is more easily achieved electricity prices are less vulnerable to exploitation of generator market power and generation investment is more likely to arise. The need for price caps which then necessitate compensatory capacity mechanisms to elicit investment is then reduced. At the same time exposure to regulatory risk is lessened. Combining these measures with greater political and regulatory restraint is argued to provide a more stable and superior means to elicit the investment needed to provide the socially optimal security of supply addressing any market imperfections at source rather than introducing new mechanisms at least as much at risk of imperfection. The use of capacity mechanisms is argued to increase the risk that energy-only markets will fail to perform as expectedand required undermining the liberalisation process. As such they raise the prospect that governments and regulators concerned about security of supply will once again find themselves responsible for achieving it at consumers' and/or taxpayers' expense but with lesser prospect of success

Decentralization and Re-centralization of Electricity Industry Governance in New Zealand

For much of the twentieth century electricity generation and transmission in New Zealand was dominated by centralized state ownership and control with local authority ownership of distribution and retailing. Radical reform of the sector commenced in the early 1980s with the progressive corporatisation and unbundling of these sub-sectors limited privatizations and a shift towards "light-handed" non-industry specific regulation. These reforms contained inherent tensions that quickly manifested themselves in a political stand-off over the electricity price path required to support new generation investment. In turn this standoff spurred the industry-led development of a voluntary self-governing wholesale electricity market. With a change of government in 1999 increasing re-centralization of industry governance and regulation resulted in part justified on the grounds of winter power "crises" in 2001 and 2003 involving significant wholesale electricity price spikes (although blackouts were a regular and more disruptive occurrence prior to the reforms). With the return to centralized industry governance and shift towards heavy-handed regulation - but now with greater private sector investment in the sector - system supply and security issues persist and questions remain over the likely effect of these policy reversals on required new investment

Grid Characteristics and the Interface Between Competition and Regulation Policies

This presentation explores the demarcation of this boundary and how it is affected by grid characteristics as a first step towards an ongoing comparative analysis of the institutional dynamics of competition and regulation policies in the electricity sector (for presentation at IAEE 2008

The Role and Significance of Cooperatives in New Zealand Agriculture, A Comparative Institutional Analysis

Cooperatives and other forms of farmer controlled businesses (FCBs) are major players in a number of New Zealand's agricultural sectors and together account for a significant share of New Zealand's economic activity. The New Zealand Ministry of Agriculture and Forestry (MAF) has commissioned the New Zealand Institute for the Study of Competition and Regulation (ISCR) to examine the role and significance of cooperatives in New Zealand agriculture. The inquiry is intended to inform consideration by MAF of public policy issues that either currently or might confront New Zealand's important agricultural sector

Intra-Country Regulation of Share Markets: Does One Size Fit All?

A large body of evidence suggests that investor protection regulationassists the development of major stock exchanges but this leaves openthe question of whether or not the same level of regulation should beapplied to all centralised trading platforms. Allowing for regulatoryvariation permits a wider choice of investment opportunities for liquidity conscious investors lowers some firms' cost of capital and enhancesplatform competition while potentially negative spillover mechanismslack both theoretical credibility and empirical support. Overalluniformity in investor protection regulation seems designed to provide anexpensive solution to a doubtful problem

Vertical Integration and Market Power in Electricity Markets

Vertical separation of generation from electricity retailing has often been required as a condition of electricity market liberalisation. A well-developed and liquid contracts market is similarly suggested as necessary to manage the resulting wholesale market risks which risks are further exacerbated by competition. Such contracts markets are rare however and increasingly evidence is emerging that vertical integration is associated not just with improved wholesale market risk management but also reduced wholesale market power. This paper develops a theoretical model showing that non-vertically integrated generators will over-report their inverse supply curves with the incentive to over-report increasing with the firm's share of generating capacity. Conversely in a vertically integrated industry no over-reporting occurs when integrated firms have balanced shares in wholesale and retail markets. In general firms whose share of generating capacity is higher (lower) than their retail market share will over-report (under-report) their inverse supply functions. Integration is found to affect retail electricity prices only via its effect on retail marginal costs. We find that retail prices are higher with vertical separation than with either balanced integration or full integration without a wholesale market. These results suggest a re-evaluation of the importance of generator wholesale market power in vertically integrated electricity industries and of measures to improve retail market competitiveness under either vertical integration or separation