Pricing access: Forward-looking versus backward-looking cost rules |
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Authors: | Graeme Guthrie John Small |
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Institution: | a School of Economics and Finance, P.O. Box 600, Victoria University of Wellington, Wellington, New Zealand b University of Auckland, New Zealand c National University of Singapore, Singapore |
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Abstract: | Regulators across many different jurisdictions and industries have recently adopted the practice of setting access prices based on the current costs of providing the relevant facilities. Though widely regarded as being efficient, the efficiency implications of using current costs instead of historical costs have not been formally analyzed. Our analysis shows that given stochastic costs, forward-looking access prices retard investment and are generally dominated by access prices determined by historical cost whenever investment is desired. |
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Keywords: | L5 L9 |
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