“A Note on Access Pricing, Role Exchangeability and Incentives to Invest”

The traditional Ramsey pricing and the Efficient Component Pricing Rule for access charges to a facility are modified in this paper, taking into account the constraint that profits per unit of investment must be the same between entrants and the incumbent (a general equilibrium requirement). It is shown that the required modifications are applicable even when the sustainability constraint is not operative. If this new condition is not satisfied, the incumbent will have an incentive to postpone the construction of the critical facility.Access Pricing; Exchangeability; Incentives to Invest

Saddlepoint Dynamics with an Endogenous Root of Convergence

This paper reconsiders local stability in the saddlepoint sense. Market time and the root of convergence are determined endogenously using partial differential equations; consequently, there is not need of the resort to any deus-ex-machina dynamics to justify an initial jump in one of the economic variables. It is shown that the regions of stability are wider than those currently admitted and that, in some cases, there is a justification for the theoretical ambiguity regarding which variable is supposed to jump. Two examples (sluggish adjustment of salaries and exchange rate dynamics) are used to illustrate the methodology.

“On the Marginal Cost of Public Funds for Argentina: CGE Evaluation and Sensitivity to Regulatory Regimes”

We estimate the Marginal Cost of Public Funds for Argentina using a computable general equilibrium (CGE) model, assessing the sensitivity of the results to the existence of alternative regulatory regimes (Price-Cap and Cost-Plus) for public utilities subject to regulation. Although the estimates are in the range of international studies, we find that the results are sensitive to the regulatory regime, to the presence of exempted goods, the existence of unemployment, the value of the elasticity of labor supply, as well as to the degree of capital mobility, between sectors and internationally.computable general equilibrium; Public Funds; Marginal Cost

Trade balance constraints and optimal regulation

In this paper we develop a model to understand the interactions between optimal regulation and external credit constraints. If a big proportion of the regulated sector is owned by foreign investors, a credit-constrained country who wants to send profits abroad has to generate enough surplus in the trade account in order to compensate capital outflows. This may be a real problem in developing countries, in which regulated sectors are big and foreign ownership is very important. We show that the credit constraint translates into a constraint of maximum profits for the regulated firm. As a consequence, overall efficiency in the regulated sector is reduced to maintain incentive compatibility. With a flexible exchange rate, devaluation is an additional instrument to relax the credit constraint, but the country is not in general willing to relax it completely. Efficiency is higher than with a fixed exchange rate, but it’s still lower than without credit constraints.Optimal regulation; Credit constraint; Trade

The pricing dynamics of utilities with underdeveloped networks

This paper uses an analytically tractable intertemporal framework for analyzing the dynamic pricing of a utility with an underdeveloped network (a typical case in most developing countries) facing a competitive fringe, short-run network adjustment costs, theft of service, and the threat of a retaliatory regulatory review that is increasing with the price it charges. This simple dynamic optimization model yields a number of powerful policy insights and conclusions. Under a variety of plausible assumptions (in the context of developing countries) the utility will find its long-run profits enhanced if it exercises restraint in the early stages of network development by holding price below the limit defined by the unit costs of the fringe. The utility's optimal price gradually converges toward the limit price as its network expands. Moreover, when the utility is threatened with retaliatory regulatory intervention, it will generally have incentives to restrain its pricing behavior. These findings have important implications for the design of post-privatization regulatory governance in developing countries.Economic Theory&Research,Markets and Market Access,Urban Water Supply and Sanitation,Infrastructure Regulation,Access to Markets

Liberalization of trade in services: A CGE analysis for Argentina, Brazil and Uruguay

In this paper we use two computable general equilibrium models to evaluate gains of liberalization of trade in services for Argentina, Brazil and Uruguay. We employ two CGE models for the calculations. For the Argentine and Uruguayan cases, we apply a model built by the authors (see Chisari (2009)) based on the MPSGE. For Brazil, our study uses the GTAP model – adapted by Rutherford (2005) that also works on an MPSGE platform. We also consider two basic cases of liberalization of trade in services: 1) mobility of goods, in which there is mobility of services across borders, as it is the traditional case of exports and imports of goods, and 2) trade presence, that is location in the domestic country of new operators with a new technology for producing services. We estimate the gains from improvements in efficiency, quality and productivity of the industries of services, due to more intense competition in the domestic market as well as from reductions in the implicit mark up on domestic services due to barriers to trade. Quality advancements lead to gains in welfare of a similar order, or even higher than expected in the case of productivity improvements. To address the case of trade presence, a latent technology is defined in situ, operative or not depending on relative prices (its market share in the overall equilibrium of the economy is endogenous). This is especially relevant for the case of telecommunications. We also observe that: 1) the economy’s specific endowment of factors will limit the expected gains of the liberalization if the latent technology is unsuitable or incompatible with them, 2) governments can face some dilemmas regarding domestic market regulations, if the liberalization of trade in financial services called for a change in regulations so that the domestic demand for government bonds were to fall.Computable general equilibrium; liberalization of trade; trade in services