Regulatory Holidays vs. Guaranteed Risk Premium: Comparing Measures to Balance Returns on Essential Facilities Investments (필수설비 투자유인을 감안한 규제방식 비교 -규제휴일과 대가보상-)

Namhoon Kwon (권남훈)

Regulatory Holidays vs. Guaranteed Risk Premium: Comparing Measures to Balance Returns on Essential Facilities Investments

Journal of Regulation Studies
2010, 19(1), pp.69-97
Publisher : 한국규제학회
Research Area : Social Science > Public Administration

Namhoon Kwon ¹

¹건국대학교

Accredited

ABSTRACT

Expecting heavy regulations on essential facilities ex post, firms may avoid or delay socially beneficial investment projects on infrastructure. For example, although the prospect for next generation network (NGN) has been blooming for quite a while, regulators in many countries have had difficult times to persuade operators to invest in fiber optic access networks. It has been proposed that the investment risks faced by operators should be reduced by exempting newly deployed networks from access regulation, awarding “regulatory holidays” to operators. However, those who oppose to this idea claim that there is no need for allowing monopoly exploitation, because the same goal can be achieved by allowing constant risk premium under regulation. In this paper, I survey the recent debate on this issue and devise a simple theoretical model to compare two approaches. It is shown that, while constant risk premium approach is generally better in terms of maximizing social welfare, there are some cases in which regulatory holidays is optimal.

KEYWORDS

essential facilities, returns on investment, regulatory holidays, optimal regulation

Citation status

* References for papers published after 2023 are currently being built.

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Journal of Regulation Studies 2023 KCI Impact Factor : 0.78