New Zealand Institute for the study of competition and regulation inc.

Abstract

This paper considers investment in infrastructure taking into account more immediate risks.  It argues that demand should be responsive to infrastructure's direct and indirect costs and risks; and that, where economically feasible, pricing will facilitate management of these risks and so enable a desirable level of investment in infrastructure.  Much infrastructure - e.g. roads, electricity and gas transmission, broadband and telecommunications networks - provide platforms on which consumers interact in various ways that affect the utilisation of the platform.  Without consumers revealing their willingness to pay for these platforms, investment is unlikely to meet the test of being socially desirable.  This issue is placed in perspective below by consideration of the effect of incentive regulation on investment when there is uncertainty, economies of scale and irreversibility.