Issue 76 September 2020 Critical Issues in Regulation – From the Journals

Frank Ramsey: A Sheer Excess of Powers, (chapter 16 is titled ‘1928 Return to Mathematics’), Cheryl Misak, Oxford University Press, Oxford, 2020. Ramsey wrote two papers in consecutive years, 1927 and 1928, both of which were published in the This book is about the life, times and professional prestigious Economic Journal. career of Frank Ramsey (1903-1930). It is in excess of 500 pages in length, with the material organised The first of these papers was titled ‘A Contribution to into 19 chapters. The author, Cheryl Misak, the Theory of Taxation’ and was published in the describes Ramsey ‘as one of the most impressive March 1927 issue. This article contained an minds in the history of philosophy, mathematics and exposition of what is commonly called the ‘Ramsey economics, but, also one of the most attractive Rule’ which was highly influential in establishing the personalities’. Chapter 14 is titled ‘ area of study now known as ‘optimal taxation’. As Economics’ and chapter 15 is titled ‘Ramseyan described by Cheryl Misak, the ‘entire field of optimal Economics: The Feasible First Best’. This includes taxation now either follows the general outline of discussion of the origins of the Ramsey Rule for Ramsey’s solution (in the case of public utilities, commodity taxation, which has also been applied to where it is called Ramsey Pricing) or uses it as a utility pricing. backdrop to alternative solutions and new problems’ (p. 310). Chapter 15 includes a note contributed by Ramsey was born in Cambridge, and apart from Robin Boadway titled ‘The Legacy of Ramsey on some years at boarding school, he grew up there. Optimal Taxation’, which places this contribution in His father, Arthur Ramsey, was a prominent the subsequent literature, and also includes a mathematician at Cambridge University and held reference to Marcel Boiteux ‘who applied the Ramsey senior positions at Magdalene College. Frank problem to public utility pricing’. Ramsey was, as a student, at Trinity College. He was highly distinguished in Philosophy and The second paper, titled ‘A Mathematical Theory of Mathematics, including by topping his year as ‘Senior Savings’, was published in the December 1928 issue Wrangler’ in Mathematics. He spent some time in of The Economic Journal. Chapter 16 contains three Austria studying Philosophy, and while in Vienna, notes on this contribution; two by subjected himself to extensive psychoanalysis by one and one by Pedro Garcia Duarte. The paper became of Freud’s most senior disciples. In Philosophy, he highly influential in establishing what is now known as later had professional interaction with Bertrand the optimal saving literature, later contributions to Russell, and made substantial contributions to the which were made by winning economists literature. When Ramsey returned to Cambridge such as , James Mirrlees, Franco from Austria in 1924 he was appointed as a Fellow at Modigliani and . Keynes was highly King’s College, where he lectured and published in praiseworthy of this paper, describing it as ‘one of the Mathematics, including seminal contributions such as most remarkable contributions to mathematical ‘Ramsey’s Theorem’. The famous Cambridge economics ever made, both in respect of the intrinsic economist, , befriended and importance and difficulty of its subject, the power and mentored the young man, and introduced him to the elegance of the technical methods employed, and the avant garde Bloomsbury Group of artists and writers. clear purity of illumination with which the writer's mind is felt by the reader’. The chapter ends with a Chapter 14 provides the background about the perspective on the role of mathematics in economics, economists and the economics at Cambridge including reference to a 1927 paper by Ramsey, titled University. Ramsey became interested in economics ‘’, which is ‘nowhere to be because of the encouragement of John Maynard found’. Keynes and another leading Cambridge economist, Arthur Cecil Pigou, who are described as the ‘mainstays of the Cambridge School’. The leading Contents Cambridge socialist economists (Maurice Dobb, Piero Sraffa and Joan Robinson) were also important From the Journals 1 to Ramsey. During his brief sojourn into economics Regulatory Decisions in and New Zealand 10

Literature Note: William Baumol and David Bradford The authors examine the relevance of this (‘Optimal Departures from Marginal Cost Pricing’, mechanism in the context of the US carbonated- , June 1970) also beverage industry. A recent wave of vertical mergers attribute the beginnings of both optimal taxation between upstream concentrate producers and theory and optimal utility pricing analysis to Ramsey’s downstream bottlers resulted in a ‘rich variation in 1927 paper: ‘[T]he formal mathematical propositions vertical structure across time and space’. Using this which are derived from optimality considerations and variation, the authors implement two complementary which are the subject of this paper, themselves have research designs to identify both the procompetitive a substantial history … As propositions on optimal and anticompetitive effects of vertical integration. taxation, they first appear in 1927 in Frank Ramsey’s The results of the empirical analysis suggest that pathbreaking article. [Further] Ramsey had in vertical integration in the US carbonated-beverage another context provided … a solution to the optimal industry caused anticompetitive price increases in pricing problem for an industry in which marginal products for which double margins were not costs do not cover total costs’ (p. 278). Baumol and eliminated. Bradford go on to discuss the contribution of Marcel There are seven sections in the paper: an untitled Boiteux (‘Sur la gestion des Monopoles Publics Introduction; Multiproduct Pricing and Vertical astreints a l'équilibre budgétaire’, Econometrica, Integration; The Carbonated Beverage Industry (two January 1956). Boiteux’s approach to utility pricing subsections); Data; The Impact of Vertical Integration has been linked to Ramsey as ‘Ramsey-Boiteux on Prices (three subsections); The Impact of Vertical Pricing’. Integration on Revenues; and Discussion and Policy Book Review: Cheryl Misak’s book, Frank Ramsey: Implications. A Sheer Excess of Powers, has been reviewed by There are 54 items in the reference list, with year of Carlisle Ford Runge for the Journal of Economic publication ranging from 1925 to 2020. Economists Literature (58, 3, September 2020, pp. 793-798). cited include John Asker, Jonathan Baker, Francis The Competitive Impact of Vertical Ysidro Edgeworth, , , Integration by Multiproduct Firms, Fernando Janusz Ordover, Michael Riordan, Nancy Rose, Luco and Guillermo Marshall, American Economic Michael Salinger, Steven Salop, and Review, 110, 7, July 2020, pp. 2041-2064. Michael Whinston. This paper is about the impact of vertical integration Amongst the references is the classic analysis of on pricing incentives in multiproduct industries, based double marginalisation; Joseph Spengler’s ‘Vertical on recent variation in vertical structure in the United Integration and Antitrust Policy’ published in The States (US) carbonated-beverage industry. While the Journal of in 1950. elimination of double marginalisation with vertical The article can be accessed by subscription to The integration is normally characterised as American Economic Review. procompetitive, the authors argue that it may cause anticompetitive price increases in multiproduct COVID-19 Infection Externalities: Pursuing industries. The authors find that vertical integration Herd Immunity or Containment?, Zachary causes price decreases in products where double Bethune and Anton Korinek, Covid Economics, 11, margins are eliminated. However, they also find that 29 April 2020, pp. 1-34. there are price increases in the other products sold This paper is about the externalities that arise when by the integrated business. They call this the social and economic interactions transmit infectious Edgeworth-Salinger Effect. The authors contend that diseases such as COVID-19, and how public health these results provide new evidence of anticompetitive measures are essential because, acting individually, effects of vertical mergers. rational agents do not internalise that they impose The authors study a mechanism that arises when infection externalities upon others. In a vertical integration eliminates the double margins in Susceptibility-Infection-Recovery (SIR) model only a subset of the products sold downstream. The calibrated to capture the main features of COVID-19 products with eliminated double margins become in the United States (US) economy, the authors show relatively more profitable to sell, which gives the that the social cost including infection externalities is multiproduct business incentives to divert demand $286,000, more than three times higher than what toward these products. It does this by increasing the private agents perceive the cost of an additional prices of the products for which double margins were infection to be (around $80,000). This ‘mis-valuation’ not eliminated. These price increases are has implications for how society ultimately overcomes anticompetitive because of how they harm the the disease: individually rational susceptible agents producer of the non-integrated products. act cautiously to flatten the curve of infections, but the disease is not overcome until ‘herd immunity’ is

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acquired, with a deep recession and slow economic also suggest that few contemporary intelligence recovery lasting several years. agencies have been able to make industrial espionage as effective a tool as the Stasi during the By contrast, the socially optimal approach developed Cold War. While the benefits of industrial espionage in the authors’ model isolates the infected by may have declined since then due to more integrated reducing their social activity close to zero while only international markets and easier access to new ideas slightly reducing the activity of the susceptible. This through legitimate channels, the costs of espionage leads to a sharp reduction in the number of infected have probably decreased even more because of agents and an overall mild impact on aggregate digitisation and the emergence of cyber-espionage as output. a comparatively inexpensive method of illicit Alternatively, the authors suppose that the planner technology transfer. The authors observe that many cannot make policy contingent on the epidemiological developed countries view industrial espionage as a status of individuals. This could either be because of severe and growing threat to their economies. the asymptomatic nature of COVID-19 or the lack of The authors identify several issues that could limit the sufficient testing. In this case, optimal policy still external validity of their findings in current sharply reduces the number of infections but at an circumstances. First, there is the discrepancy economic cost that is significantly larger initially. between East Germany’s centrally-planned economy However, it is short lived. The estimated social cost and today’s more market-based economies. Second, of an additional infection in this scenario is around the extensive trade embargoes against the $300,000. Communist bloc during the Cold War restricted There are four sections in the paper: Introduction; standard forms of technology transfer. Third, there First Step: An SIS Economy (four subsections); SIR has been a fundamental shift in spying technology Model (five subsections); and Conclusion. away from human intelligence towards IT-based methods. There are 18 items in the reference list, with year of publication ranging from 1927 to 2020. Economists On the other hand, the process through which newly- cited include Fernando Alvarez, Martin Eichenbaum, acquired information is now translated into Miguel Faria-e-Castro, Mark Gersovitz, Steven productivity growth may differ little from the process Goldman, Jeffrey Hammer and James Lightwood. in East Germany at the time of the Cold War. This is especially so in countries, such as China and Russia, A classic article is William Kermack and Anderson that are still characterised by strong centralised McKendrick, ‘A Contribution to the Mathematical governments. While the effectiveness of East Theory of Epidemics’, Proceedings of the Royal Germany’s industrial espionage program may have Society of London. Series A, Containing Papers of a been exceptional, this was arguably due to the Mathematical and Physical Character, 115, 772, Stasi’s outstanding ability to recruit and plant 1927, pp. 700-721. informants in relevant positions in West Germany. The article can be accessed here in Covid This was facilitated by the close historical links Economics. Covid Economics is a free on-line between the two countries and the role of ideology as journal published by the Centre for Economic Policy an important (and inexpensive) motive for Research in London since late March 2020. The collaboration. Whether or not the marginal effect of fiftieth issue was published on 25 September 2020. additional information on productivity is different today than it was 40 years ago is more difficult to Industrial Espionage and Productivity, answer. In spite of the Stasi’s high level of Albrecht Glitz and Erik Meyersson, American proficiency, the authors would therefore not Economic Review, 110, 4, 2020, pp. 1055-1103. necessarily view their results as an upper bound of This paper is about evaluating the economic returns the effect of industrial espionage on productivity. to state-sponsored industrial espionage, illustrated by There is an untitled Introduction and six titled the example of East German espionage (organised sections in the paper: Historical Background; Data by the Secret Police, the Stasi) of West Germany (five subsections); Case Studies (two subsections); during the Cold War. The authors had access to the Empirical Framework (two subsections); Results Stasi archives which provided them rich information (seven subsections); and Conclusion. on industrial espionage, thus enabling a unique opportunity for studying this question. More broadly, There are 69 items in the reference list, with year of it shed light on the role of international knowledge publication ranging from 1985 to 2018. Economists flows for productivity growth. The authors’ empirical cited include Nicholas Bloom, , Zvi results suggest that the returns to industrial Griliches, Maria Guadalupe, Bronwyn Hall, Petra espionage were substantial, enabling East Moser and Benjamin Olken. Germany’s economy, at least to some extent, to keep The article can be accessed by subscription to up with productivity growth in the West. The authors American Economic Review.

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The CMA’s Assessment of Customer Energy Pricing Options in Australia: A Case Detriment in the UK Retail Energy Market, Study, Emily Brown and Ben McNair, Economic Stephen Littlechild, Journal of Regulatory Economics, Papers, 39, 1, March 2020, pp. 1-14. 57, 2020, pp. 203-230. This paper is about the introduction of more cost- This paper is about the assessment of customer reflective pricing of electricity to small users in the detriment in the United Kingdom (UK) retail energy Australian Capital Territory (ACT). The ACT is one of market and the subsequent adoption by the the first Australian jurisdictions to see significant Government of a price cap on most domestic energy uptake rates of more cost‐reflective network tariffs. The assessment was made by the electricity tariffs by small consumers. The paper Competition and Markets Authority (CMA). In this contains a brief review of the literature on cost- paper Stephen Littlechild critiques the CMA’s reflective pricing (section 2); a description of tariff calculation of customer detriment and presents reform in the ACT (section 3); and a summary of the alternative calculations suggesting a much lower findings from the ACT experience (section 4). The detriment. The author argues that this raises a Conclusion (section 5) contains three lessons from number of questions about the CMA’s approach. the ACT experience. The CMA found that ‘weak customer response’ The authors, Emily Brown and Ben McNair, interpret enabled incumbent UK energy retailers to set higher economic theory as predicting that pricing electricity and discriminatory prices to residential customers. to better‐reflect the costs imposed by peak demand The CMA estimated the associated higher prices will benefit consumers by deferring network-capacity constituted a customer detriment in the range £1.4 augmentation. The authors draw on the theoretical billion to £2 billion per year. Notwithstanding, the work of, in particular, Marcel Boiteux and Jacques CMA recommended against a price cap on most Dreze in the 1960s; and some more recent studies of domestic energy tariffs. However, in view of the size tariff design. The ACT changes are contextualised of the detriment and public concern, the Government within the broader Australian policy environment. introduced a price cap as from January 2019. Tariff reform in the ACT (section 3) began in relation Stephen Littlechild described his alternative to large commercial users in the 1980s. A time-of- calculations as ‘more realistic’ than those made by use tariff was introduced for small users in 2007, and the CMA, suggesting that any detriment would have a seasonal peak demand tariff was introduced in been nearly an order of magnitude lower than the 2017. Long-run marginal cost (LRMC) is a cost CMA. He also suggested putting less weight on benchmark used in the ACT, and the geographic calculations of customer detriment at a moment in separation of residential and commercial areas time; and more weight on conventional competition allows the identification of separate load profiles. criteria such as barriers to entry, expansion or The findings from the ACT experience are set out in customer switching. The author concludes that it was section 4, and these are drawn together in the inappropriate to introduce a price cap. conclusion which identifies three lessons learned There are six sections in the paper: Introduction; from the implementation of cost-reflective electricity Competition Authority Calculations of Customer tariffs in the ACT. First, the results suggest Detriment; The CMA Energy Market Investigation: consumers have responded to price signals with Direct Approach; Alternative Models and flatter load profiles resulting, thereby improving Calculations; The CMA’s Indirect Approach; and network utilisation. The authors observe that Conclusion. economic benefits that have ‘been asserted by theory can be achieved in practice’. Second, the results There are 39 items in the reference list, with year of suggest that the uptake of cost‐reflective tariffs is publication ranging from 1946 to 2020. Economists considerably greater under an opt‐out tariff cited include Tim Brennan, Franklin M Fisher, assignment policy than with an opt-in arrangement. Friedrich von Hayek, Israel Kirzner, Catherine Third, in the authors’ view, it is essential to consult Waddams Price, and George Yarrow. with consumers to make them ‘more willing and able A classic reference is Fanklin M Fisher and John J to embrace cost-reflective tariff reform’. McGowan, ‘On the Misuse of Accounting Rates of There are 23 items in the reference list, with year of Return to infer Monopoly Profits’, American Economic publication ranging from 1960 to 2020. Economists Review, 1983. cited include Marcel Boiteux, Michael Crew, Jacques The article can be accessed by subscription to Dreze, Ahmad Faruqui, Koichiro Ito, Michael Pollitt Journal of Regulatory Economics. and Paul Simshauser. The article can be accessed by subscription to Economic Papers.

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Revisiting the Income Elasticity of Energy Dynamic Competition with Network Consumption: A Heterogeneous, Common Externalities: How History Matters, Hanna Factor, Dynamic OECD & Non-OECD Country Halaburda, Brunu Jullien and Yaron Yehezkel, The Panel Analysis, Brantley Liddle and Hillard RAND Journal of Economics, 51, 1, Spring 2020, pp. Huntington, The Energy Journal, 41, 3, 2020, pp. 3-31. 207-229. This paper is about platform competition, where This paper is about the relationship between energy offering the highest‐quality product may not be consumption and each of income and price. The enough to dominate the market. When there are empirical analysis is conducted in the context of network externalities, a platform's success depends economic development. It is based on a panel both on its quality and on consumers' beliefs that dataset from 78 countries divided into two groups other consumers will join it. In a static model, a focal according to whether or not they are members of the platform that has an advantage in such beliefs may Organisation for Economic Cooperation and dominate the market in spite of offering lower quality; Development (OECD). Up to 56 years of data are resulting in an inefficient equilibrium. The authors available for some countries. Results are generated ask whether this inefficiency can be eliminated in a for both the income elasticity of demand and the price dynamic game with a long time horizon. The authors elasticity of demand. There are six sections in the also consider how their results might be affected by paper: Introduction; Literature Review; Model and the presence of heterogeneous consumers. Data; Methods; Results and Discussion; and In a model with a long but finite time horizon the Conclusions. There is also an Appendix. authors find that the better platform wins and the The authors assemble a wide panel dataset of efficient outcome is achieved when the future energy consumption and prices for 37 OECD matters. More specifically, a higher‐quality entrant countries and 41 non-OECD countries. The can overcome the incumbent's network effect unbalanced data spans 1960 to 2016, with the full 56 advantage. The future matters when both the time years of data for 17 countries and with all countries in horizon is long and the discount factor is high. the dataset having at least 18 years. In addition, the However, if the discount factor is low, platforms are estimation procedure from the authors’ dynamic less concerned about the future, and so the panel addresses non-stationarity, heterogeneity, and competition more nearly resembles a static game. In cross-sectional dependence. this case, inefficiency may persist even for a time horizon extended to infinity. The authors conclude Most results suggest that the elasticity of energy that, for a finite horizon, social welfare is (weakly) consumption with respect to the gross domestic increasing in the extent to which platforms are product (GDP) is less than unity. An estimate of 0.7 forward looking, because forward orientation makes it is typical. An elasticity below unity means that more likely that consumers will be served by the ‘energy intensity’ will decrease with economic growth. higher‐quality platform. Intuitively, a high‐quality Most empirical results from the study suggest that the platform has more to gain by being focal in the GDP elasticity is similar for OECD and non-OECD game's final period than does the low‐quality countries. The results also suggest that, for non- platform, which means that it will have more incentive OECD countries, the elasticity is similar across to compete aggressively in early periods with the income-bands. There is no evidence that elasticity objective of capturing (or retaining) the focal position. estimates (for GDP or prices) for individual countries vary systematically according to their income. When the model is modified to capture more realistic Further, the price elasticity is larger (in absolute features, the authors find new sources of inefficiency, terms) for OECD countries than for non-OECD even if the discount factor is high. A finite time countries, and the price elasticity is typically horizon entails that platforms know when the last insignificant for non-OECD countries. period occurs; if that is not known, then it is better to model it as an infinite horizon. Markov equilibria in There are 40 items in the reference list, with year of the infinite game replicate those in the finite‐horizon publication ranging from 1954 to 2020. Economists game extended to infinity. For high discount factors, cited include LM Koyck, , Stephen however, additional and inefficient Markov equilibria Nickell, Richard Pindyck and Richard Schmalensee. arise in which the lower‐quality platform dominates A classic reference is LM Koyck’s Distributed Lags the market in all periods. These inefficient equilibria and Investment Analysis published by North Holland do not emerge in an alternative model in which in 1954. switching costs replace network effects, because each buyer's decision does not rely on the beliefs The article can be accessed by subscription to The regarding the decisions of other buyers. Energy Journal. The authors also consider a scenario where the platforms' qualities change stochastically from period

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to period, allowing each platform to win any period the more frequent leadership changes observed in with some probability. The more the platforms are the market for video-game consoles compared with forward looking, the less likely it is that even a the market for computer operating systems. Even so, high‐quality platform will overcome its non-focal expectations and thus focality also affect the market position. This is because, if one platform is of higher dynamics for the latter types of environments. quality on average than the other, dynamic Independently of other factors, it may lead to excess considerations give it more incentive to capture the inertia and hence to reduced social welfare. market or to maintain its focal position, even if in the There are seven sections in the paper: Introduction; current realisation, it has lower quality. At the The Model; Dynamic Game with Finite Horizon; extreme, it is possible for a focal platform with Markov Perfect Equilibria under Infinite Time Horizon; higher‐quality realisation to lose its dominance, The Distinction between Network Effects and provided that platforms are sufficiently forward Switching Costs; Stochastic Qualities; and looking. This finding indicates that, when qualities Conclusions. There is one Appendix. are stochastic, social welfare may decline as platforms become less myopic. There are 28 items in the reference list, with year of publication ranging from 1985 to 2018. Economists When consumers differ in their valuations for different cited include Mark Armstrong, Luis Cabral, Paul platforms, a focal position becomes less important for Klemperer, Stan Liebowitz, Stephen Margolis and them. The authors refer to three key articles. First, Jean Tirole. Mark Armstrong considers a continuum of consumers that differ in their preferences for two competing The article can be accessed by subscription to The platforms. If the two platforms are sufficiently RAND Journal of Economics. horizontally differentiated, then for given platform’s prices, there is a unique allocation of consumers, Fiber Investment and Access under such that each platform has a positive market share. Uncertainty: Long-term Contracts, Risk Second, Bruno Jullien and Allessandro Pavan reach Premia, and Access Options, Marc Bourreau, the same conclusion, assuming that there is enough Carlo Cambini, Steffen Hoernig and Ingo Vogelsang, dispersion in beliefs about platforms' ability to attract Journal of Regulatory Economics, 57, 2, April 2020, consumers. Third, two of the authors of this paper, pp. 105-117. Hanna Halaburda and Yaron Yehezkel, show that the This paper is about the difficult trade-off faced by qualitative futures of focality follow to an extension policy makers and regulatory institutions between with loyal and non-loyal consumers, but that the creating incentives for investment in next-generation importance of focality decreases to the extent that fibre networks and the maintenance of competition consumers are loyal to a specific platform. via access provision. In this paper, the four authors Applying the intuition behind these three articles, the compare several variants of pricing access and the authors consider that it is reasonable to expect that effects of each variant on entry and geographic increasing consumer heterogeneity reduces the coverage. The analysis is conducted in what the effect of focality on platform profits. In that case, authors describe as a ‘general duopoly setting’. The platforms will be less inclined to compete in the authors seek to determine whether and how risk current period so as to secure a future focal position. premia, access options or long-term contracts improve incentives as compared with standard The authors note that their model abstracts from the access pricing. presence of an installed base, which constitutes an additional force capable of driving excess inertia and The authors show that there is scope for improving resulting in an equilibrium where the lower‐quality investment incentives: platform dominates for extended periods. Abstracting First, risk premia (additional margins included in the from an installed base highlights the role of the weighted average cost of capital (WACC) on top of coordination problem as a driving force of excess the cost-based access charge) guarantee highest inertia. Although any market that exhibits network coverage, but distort retail pricing. effects is affected by customer expectations and installed base, not all markets are affected to the Second, access options (where the entrant pays an same extent. For example, in the market for video- ex ante fee to gain access at standard access game consoles, excess inertia is likely to be driven by charges later on) safeguard undistorted retail consumer expectations. New generations of the competition, but are not effective in the most costly platforms are clearly distinguished from the previous areas. ones by technological jumps, and backward Third, long-term contracts (where the entrant compatibility seldom has limited appeal. In other commits to buying some fixed minimum quantity after markets, such as smartphones and computer investment) have little scope to increase coverage. operating systems, an installed base may play a more important role. These differences may explain

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This is because they intensify retail competition which The authors provide an empirical assessment of the reduces investment incentives. laws’ impact on a state’s utilisation of private infrastructure investment. In addition to collecting Thus different access schemes are optimal and analysing detailed data on PPP-enabling laws, depending on the type of area to be covered: Access they survey experts from a range of backgrounds to options are preferable to risk premia where they are create an expert-weighted index of enabling-law feasible (that is where the sum of profits without an favourability. Weights are assigned to 13 critical extra access margin exceeds investment cost) elements of PPP-enabling laws and state laws are because they do not distort ex post market outcomes. studied to determine which of these contain various More outlying areas can only be covered using risk provisions. premia. The results indicate that the improved legal There are six sections in the paper: Introduction; frameworks offered by PPP-enabling laws are Model Setup; Risk Premia; Access Options; Long- successful in attracting private capital to term Contracts; and Conclusions. transportation projects. The greatest insight comes There are 21 items in the reference list, with year of from grouping the 13 provisions into three categories: publication ranging from 1994 to 2020. Economists regulatory and contractual; funding and financing; cited include , Jerry Hausman and and PPP-empowering. Although the effects Richard Pindyck. associated with adding specific provisions are limited, the authors find strong effects associated with A classic reference is Dixit and Pindyck’s Investment provisions that empower PPPs by exempting the under Uncertainty published by Princeton University PPP from extant procurement laws and property Press in 1994. taxes while protecting the private partner’s The article can be accessed by subscription to the confidential business information. In the authors’ Journal of Regulatory Economics. view, the findings provide clear guidance to states wishing to pass laws that attract private investment; Do Public-Private-Partnership-Enabling Laws and to states wishing to revise PPP-enabling laws Increase Private Investment in with the aim of attracting more private investment. Transportation Infrastructure?, Daniel Albalate, Germa Bel and R Richard Geddes, Journal of Law The authors also find a positive association between and Economics, 63, 1, February 2020, pp. 43-70. PPP laws (and their favourability) and the annual number of PPP projects reaching financial close. This paper is about public-private partnerships The higher percentage of PPP investment does not (PPPs), defined as contracts that bundle the design, occur because of a crowding-out effect: PPP laws construction, financing, operation, and maintenance and PPP investment are not associated with lower of large civil and social infrastructure projects. There levels of government investment in highways. The are five sections in the paper: Introduction; Public- findings are robust to measuring private infrastructure Private Partnerships in Transportation; Enabling investment via PPPs and are significant at standard Laws and the Favorability Index; Empirical Strategies levels of confidence. and Estimates (five subsections); and Summary and Conclusions. There are 45 items in the reference list, with year of publication ranging from 1962 to 2018. Economists By way of background, the authors note that PPPs cited include David Autor, Claire Friedland, Elisabetta shift many risks to the private partner while Iossa, David Martimort, Sam Peltzman, John Quiggin encouraging a long-term relationship between the and . public-sector project’s sponsor and the private partner. They further note that the PPP approach to The article can be accessed by subscription to infrastructure delivery is increasingly common in the Journal of Law and Economics. United States and abroad. As of late 2016, 35 states Product Safety, Contracts and Liability, Xinyu and Puerto Rico had passed modern PPP-enabling Hua and Kathryn Spier, The RAND Journal of laws. The laws clarify the set of institutional Economics, 51, 1, Spring 2020, pp. 233-259. arrangements that underpin PPPs, thus mitigating uncertainty while lowering transaction costs. This paper is about whether manufacturers should be Enabling laws address important contractual issues, held liable for injuries suffered by consumers. In the such as whether: PPPs can be used for both new United States, approximately 30,000 new products and existing facilities; the state allows the mixing of liability cases are filed in state courts each year, and public-sector and private-sector financing; the this is just the ‘tip of the iceberg’, as many potential government can share toll revenue; and state lawsuits (some of which are meritorious) are not legislative approval is needed after a PPP agreement brought at all. According to the Consumer Product is concluded. Safety Commission, a government agency that oversees products ranging from coffee makers to

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toys and table saws, 38 million people sought There are 44 items in the reference list, with year of medical attention in the United States in 2010 for publication ranging from 1975 to 2018. Economists injuries related to consumer products. In addition, cited include Sanford Grossman, Janusz Ordover, the National Safety Council estimates 4.6 million George L Priest, Michael Riordan, David Sappington, people required medical attention for injuries and . sustained while using the roadways in 2016, and that The article can be accessed by subscription to The the costs of motor vehicle deaths, injuries, and RAND Journal of Economics. property damage were $432 billion. The authors inform the policy debate about the Competition Law as a Form of Social appropriate role of products liability law by providing Regulation, Ioannis Lianos, The Antitrust Bulletin, a rigorous demonstration of the basic circumstances 65, 1, March 2020, pp. 3-86. under which businesses will try to limit or disclaim This paper is about the role of inequality and poverty products liability and, as a consequence, underinvest in the study of competition law. The author considers in product safety. The authors show that businesses that, for a long time, this was regarded as a ‘fringe that possess market power will disclaim responsibility topic’ of interest only for developing and emergent for consumer harms and will underinvest in safety economies. It is claimed in this paper that the when consumers who face the highest risks of situation has changed, and that the question of accidents are also those who are willing to pay more inequality and poverty has recently taken ‘centre for the product. This result persists even when: stage in mainstream competition law scholarship in quality is unobservable to consumers at the time of the developed countries’. Further, it is also observed sale; businesses offer multiple versions of their that some of this literature deplores the current state products with a menu of prices and damage-payment of competition law, which has largely ignored this clauses; and there is less‐than‐full market coverage. issue, and argues for a different paradigm that would The authors illustrate how legal interventions – actively engage with economic inequality and its including products liability and prohibitions on liability causes. Ioannis Lianos takes a social-contract waivers and disclaimers in private contracts – can perspective and notes the hybrid nature of improve social efficiency. competition law. Further, competition law is seen The authors suggest their insights are also relevant both as a tool of economic order and as a form of when consumers can take actions to reduce the risks social regulation. associated with dangerous products. Consumers This paper contains an exploration of what the author can and should take reasonable precautions when sees as the main difficulty in enriching competition driving all-terrain vehicles or operating chain saws, law with equity concerns. Ioannis Lianos argues that for example. In such settings, a socially optimal this difficulty arises because the economic liability rule would hold consumers accountable for a foundations of mainstream competition law lie in failure to take reasonable precautions. In particular, welfare economics and its crucial separation of the a rule of strict liability with a defence of contributory economic efficiency dimension from distributive negligence would align the private interests of justice. The author then examines alternative businesses and consumers with those of the ‘social traditions in economic thought which are more planner’. As in their benchmark model (section 3), compatible with an egalitarian perspective. Attention legal intervention is necessary when the marginal then turns to the institutional question, exploring the consumer places a relatively low value on product various instruments that governments dispose in safety. Without legal intervention or regulation, order to equalise, and the respective role of more businesses would eschew contractual liability and conventional tools against inequality, such as underinvest in product safety. taxation. Although their model is framed in terms of consumer The author concludes that the institutional argument products and public safety, the authors suggest that against equity concerns in competition law does not the issues also apply to commercial transactions. stand serious scrutiny. Also, there is critical Buyers could be businesses or corporations, and the engagement with the argument that there is a trade- harms could include property damage and lost off between equality and efficiency. The author again economic profits. In practice, the courts have been concludes that this argument does not stand serious less inclined to intervene in business‐to‐business scrutiny. The final section revisits the ‘thorny settings than in consumer‐product settings. question of what is to be equalised’. Drawing on the There are five sections in the paper: Introduction; idea of complex equality, the author presents the Literature, The Benchmark Model (two subsections); contours of a fairness-driven competition law. Extensions (four subsections); and Conclusion. There are seven sections in the paper: Introduction: There is one Appendix. The Twilight of the Efficiency Approach in Competition Law; The Hybrid Nature of Competition

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Law: Between Economic Policy and Social Regulation; Is Economic Inequality a Competition Law Problem? The Economic Foundations of Competition Law; Is Competition Law an Adequate Tool to Deal with Specific Forms of Inequality?; Equity and Efficiency: Is There a Trade-Off?; A Fairness-Driven Competition Law; and Conclusion: The Necessary and Long-Awaited Enrichment of Competition Law. Economists cited include Kenneth Arrow, Anthony Atkinson, Augustin Cournot, John Maynard Keynes, , Alfred Marshall, Vilfredo Pareto, Martin Ravallion, Lionel Robbins, , , , Robert Solow and Joseph Stiglitz. The article can be accessed by subscription to The Antitrust Bulletin.

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rights in the Murray-Darling Basin. Submissions are Regulatory Decisions in required by 30 October 2020. Australia and New Zealand Australian Competition Tribunal (ACT) Australia No reportable matters listed. Australian Competition and Australian Energy Market Consumer Commission (ACCC) Commission (AEMC) Measuring Broadband Australia Report 10, Minimising the Costs of Market Interventions June Quarter 2020 Published – Final Rule On 29 September 2020 the ACCC published its tenth On 10 September 2020 the AEMC made a final rule quarterly Measuring Broadband Australia report, requiring the Australian Energy Market Operator which is the first quarterly report to provide detailed (AEMO) to minimise costs to consumers when it is results on network performance during the COVID-19 necessary to intervene in the electricity market. pandemic. Tracking Changes in Trading Activity Energy Industry Cooperation Authorised (liquidity) in Gas Markets – Final Report with Strict Conditions On 17 July 2020 the AEMC published its biennial On 17 September 2020 the ACCC announced final report tracking changes in trading activity in authorisation for the Australian Energy Market Australia’s gas markets. Operator (AEMO) and participants in gas and electricity markets to cooperate on measures to Guiding the National Electricity Market secure Australia’s energy supplies during the COVID- Through the Pandemic – Latest Measures 19 pandemic. On 9 July 2020 the AEMC announced measures to Coal Producers Allowed to Collectively guide the national electricity market through the Bargain with Port of Newcastle Operations COVID-19 pandemic. On 27 August 2020 the ACCC announced its Australian Energy Market Operator authorisation until 30 September 2030 of NSW (AEMO) Minerals Council and ten coal producers to collectively negotiate the terms and conditions, 2020 Electricity Statement of including price, of access to the Port of Newcastle for the export of coal and other minerals. . Opportunities Published NBN Co Service Standards and Pricing On 27 August 2020 the AEMO published its Inquiries – Views Sought Electricity Statement of Opportunities which forecasts electricity supply reliability in the National On 20 August 2020 the ACCC announced it was Electricity Market over a ten-year period. seeking feedback on a proposal from NBN Co addressing concerns about service standards for 2020 Integrated System Plan Published wholesale NBN products and the pricing of entry- On 30 July 2020 the AEMO released its second level NBN services. Submissions were required by Integrated System Plan (ISP). Updated every two 11 September 2020. years, and endorsed by the COAG Energy Council, NBN Wholesale Market indicators Report the ISP is a guide on investment needed for a secure June Quarter 2020 Released energy future, while meeting prescribed emissions trajectories. On 13 August 2020 the ACCC published its June quarter report on the NBN wholesale market, with Quarterly Energy Dynamics Q2 2020 Report a focus on residential broadband access services Published Murray-Darling Water Basin Markets Inquiry On 22 July 2020 the AEMO released its quarterly – Interim Report Released report to the end of June detailing market dynamics, trends and outcomes in Australia’s On 30 July 2020 the ACCC released the interim electricity and gas markets. report on its inquiry into markets for tradeable water

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Australian Energy Regulator (AER) Australian Capital Territory Electricity Network Performance Report 2020 Independent Competition and Published Regulatory Commission (ICRC) On 17 September 2020 the AER published a new report on the performance of the National Incentive Mechanisms for Water and Electricity Market. Sewerage Services Price Regulation – Final Report Released Wholesale Markets Quarterly Q2 2020 Published On 28 August 2020 the ICRC released its final report of the incentives Icon Water has to operate On 14 August 2020 the AER published the efficiently in delivering regulated water and sewerage Wholesale Markets Quarterly for Q2 2020. services. Retail Energy Market Performance Update Q3 WACC Methodology Review Announced 2019-20 Published On 28 August 2020 the ICRC announced On 30 July 2020 the AER released the Retail Energy commencement of a review of how it calculates the Market Performance Update Q3 2019-20. weighted average cost of capital (WACC), aimed at ensuring that Icon Water receives an appropriate State of the Energy Market 2020 Published return on its investments in infrastructure. On 1 July 2020 the AER published the State of the Submissions on the issues paper are required by 30 Energy Market 2020. October 2020. Ergon Energy Electricity Distribution Tariffs New South Wales 2020-21 Approved Independent Pricing and On 1 July 2020 the AER approved Ergon Energy’s Regulatory Tribunal (IPART) 2020-21 electricity distribution tariffs. Review of Water NSW’s Rural Bulk Water Energex Electricity Distribution Tariffs 2020- Prices – Issues Paper Released 21 Approved On 15 September 2020 the IPART released its On 26 June 2020 the AER approved Energex’s issues paper, seeking feedback and submissions 2020-21 electricity distribution tariffs in from the public on prices that Water NSW can charge accordance with its 2020-25 revenue determination. its customers for providing rural bulk water services SAPN Electricity Distribution Tariffs 2020-21 from 1 July 2021. Approved Review of Water Management Prices – On 26 June 2020 the AER approved Energex’s Issues Paper Released 2020-21 electricity distribution tariffs in On 15 September 2020 IPART released its issues accordance with its 2020-25 revenue determination. paper seeking feedback and submissions from the Roma Brisbane Pipeline 2020-21 Gas public on prices that WAMC can charge its customers Reference Tariff Approved for providing water management services, from 1 July 2021. On 22 June 2020 the AER approved the 2020-21 gas reference tariff proposed by Roma Brisbane Northern Territory Pipeline for their Queensland pipeline. Utilities Commission National Competition Council (NCC) Port of Darwin Standard Charges for Prescribed Services – Updated Schedule Application for Declaration of Certain Services in Relation to the Port of Newcastle On 23 July 2020 the Utilities Commission published the updated Schedule of Port Charges as at 1 July On 23 July 2020 the NCC received an application 2020, for services at the Port of Darwin. from the NSW Minerals Council for declaration of certain services in relation to the Port of Newcastle. Six submissions were received in response to the application.

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Review of Ring-Fencing Code and Guidelines Victoria – Final Report Essential Services Commission On 23 July 2020 the Utilities Commission released its Final Decision following its review of the Northern (ESC) Territory Electricity Ring-fencing Code and Victorian Energy Upgrades Performance Guidelines. Report 2019 Published Queensland On 24 September 2020 the ACCC Queensland Competition Authority Victorian Default Offer Price Review 2021 – (QCA) Draft Decision No reportable matters listed. On 15 September 2020 the ESC released its Draft Decision on its Victorian Default Offer Price South Australia Review 2021. Feedback is required by 20 October 2020. Essential Services Commission of South Australia (ESCOSA) Western Australia Energy Retailers Price Offers Comparison Economic Regulation Authority Report 2019-20 and Supplementary (ERA) Electricity Retail Price Offers Comparison Weighted Average Cost of Capital Debt Risk Report 2019 Published Premium Process Update On 30 September 2020 the ESCOSA published a On 7 September 2020 the ERA published its comparison report on energy retail price proposed update of the debt risk premium offerings to small customers (residential and small process. business) for the previous financial year. A supplementary report focused on movements in 2020 Energy Price Limits Approved electricity retail prices for small customers since the introduction of the Default Market Offer on 1 July On 26 August 2020 the ERA published its final 2019. decision approving 2020 energy price limits. South Australian Rail Access Regime 2020 Dampier to Bunbury Natural Gas Pipeline Review – Final Report Proposed Revised Access Arrangement – Draft Decision On 28 August 2020 the ESCOSA released its final report on the review of the third party access On 14 August 2020 the ERA published its draft regime that applies to declared rail infrastructure decision on proposed revisions to the Dampier services in South Australia. Bunbury Pipeline access arrangement for 2021 to 2025. Tasmania Weighted Average Cost of Capital for Rail Office of the Tasmanian Economic Networks 2020 – Determination Regulator (OTTER) On 11 August 2020 the ERA published its determination on the 2020 Weighted Average Cost Regulated Minimum Feed-in Tariff Rate 2020- of Capital to be applied in the determination of floor 21 Approved and ceiling cost prices for the freight and urban On 22 June 2020 the OTTER approved the 2020-21 railway networks, and for the Pilbara railways. Regulated Minimum Feed-in Tariff Rate.

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New Zealand Input Methodologies for Fibre Service Providers – Consultation Paper Released New Zealand Commerce On 13 August 2020 the NZCC published a Commission (NZCC) consultation paper as it develops fibre input Transpower’s Proposal to Recover its methodologies, as required under Part 6 of the Telecommunications Act. Investment in Managing Voltage Stability in Waikato and Upper North Island – Approved Aurora Energy’s Proposed Investment Plan and Associated Price Increases – Issues On 23 September 2020 the NZCC announced it Paper Released had approved Transpower’s proposal to recover up to $143 million of investment to manage voltage On 30 July 2020 the NZCC announced proposed stability in the Waikato and Upper North Island residential price increases, to cover planned region. investment over the next decade. A draft decision is Fibre Price-quality and Information anticipated in November, and a final decision in March 2021. Disclosure Regulation – First Paper Released

On 15 September 2020 the NZCC released its first paper for fibre price-quality and information disclosure regulation, setting out the proposed process and approach to regulating telecommunications companies that provide fibre access services. Fonterra’s Base Milk Calculation 2019-20 – Final Report On 15 September 2020 the NZCC released its final report on Fonterra’s base milk price calculation for the 2019-20 dairy season. Mobile Termination Access Services (MTAS) Regulation Retained – Final Decision On 2 September 2020 the NZCC issued its final decision against deregulating MTAS at this time. Measuring Broadband New Zealand Spring 2020 Report Published On 21 August 2020 the NZCC published the latest Measuring Broadband New Zealand report.

Network is a quarterly publication of the Australian Competition and Consumer Commission for the Utility Regulators Forum. For editorial enquiries please contact Rob Albon ([email protected]) and for mailing list enquiries please contact Genevieve Pound ([email protected]).

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