Idiosyncratic risk and the cost of capital: the case of electricity networks

We analyze the treatment and impact of idiosyncratic or firm-specific risk in regulation. Regulatory authorities regularly ignore firm-specific characteristics, such as size or asset ages, implying different risk exposure in incentive regulation. In contrast, it is common to apply only a single benchmark, the weighted average cost of capital, uniformly to all firms. This will lead to implicit discrimination. We combine models of firm-specific risk, liquidity management and regulatory rate setting to investigate impacts on capital costs. We focus on the example of the impact of component failures for electricity network operators. In a simulation model for Germany, we find that capital costs increase by \(\sim \) 0.2 to 3.0 % points depending on the size of the firm (in the range of 3–40 % of total cost of capital). Regulation of monopolistic bottlenecks should take these risks into account to avoid implicit discrimination.     

Deutsche Leistungsbilanzüberschüsse in der Kritik

Germany runs large current account surpluses. Recently the surplus has been higher than seven per cent of GDP. This has provoked many different criticisms. First, some argue that the euro is the main problem. Second, German wages and prices have been criticised for being too low. Third, according to some critics, German domestic demand should be higher. Fourth, current account surpluses have been assumed to be unsustainable. The article discusses all those arguments and analyses their validity.     

Driving Trucks and Driving Sales? The Impact of Delivery Personnel on Customer Purchase Behavior

This study investigates how and under what conditions delivery persons, specifically truck drivers of a supplier firm, affect customers’ purchase behavior in industrial customer–supplier relationships. Drawing on service quality and customer contact literature, we test a proposed theoretical model that suggests a positive direct effect of personal contact quality (provided by a delivery person) on sales as well as three situational constraints that determine the occurrence and strength of the direct effect.