Liberalisation in a world of second best: evidence on European network industries

Ugur, Mehmet (2009): Liberalisation in a world of second best: evidence on European network industries.

Abstract

This article reports mixed results about the impacts of liberalisation in European network industries. Telecommunications prices have fallen and converged across EU-15, but electricity and gas prices have either increased or diverged. Productivity has increased, but mainly as a result of falling employment in absolute and relative terms. Liberalised industries are still characterised by high levels of market concentration and low levels of transparency and market integration. These findings are in line with the predictions of the theory of second best and suggest that the case for liberalisation of network industries has been oversold.

• Item Type: MPRA Paper
• Language: English
• Keywords: Liberalisation, network industries, second-best, public policy, European Union
• Subjects: D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D78 - Positive Analysis of Policy Formulation and Implementation; D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; D - Microeconomics > D4 - Market Structure, Pricing, and Design

References

Baumol, W. J. (1965). ‘Informal judgement, rigorous theory and public policy’. Southern Economic Journal. 32(1), 137-146.

Bhagwati, J. N., V. K. Ramaswami and T. N. Srinivasan (1969). ‘Domestic distortions, tariffs and the theory of optimum subsidiy: some further results’. Journal of Political Economy, 77(4), 1005-1019.

Blackorby, C. (1990). ‘Economic policy in a second-best environment’. Canadian Journal of Economics, 23(4), 748-771.

Borenstein, S., J. B. Bushnell and F. A. Wolak (2002). ‘Measuring market inefficiencies in California’s restructured wholesale electricity market’. American Economic Review, 92(5), 1376-1405.

Buehler, S. (2005). ‘The promise and pitfalls of restructuring network industries’. German Economic Review, 6(2), 205-228.

Bushnell, J. B. and E. T. Mansur (2005). ‘Consumption under nosiy price signals: a study of electricty retail rate deregulation in San Diego’. Journal of Industrial Economics, 53(4), 493-513.

Copenhagen Economics (2005). Market Opening in Network Industries: Parts I and II. (Report no. 6201 for DG Internal Market). Retrieved 12 Fenbruary, 2007, from http://www.copenhageneconomics.com/publications.

ERG (2005a) (European Regulators Group for Electronic Communications Networks). ‘On the SMP concept for the new regulatory framework’. ERG Working Paper no. (03) 09 rev3. Retrieved on 13 April, 2007, from http://erg.eu.int/documents/index_en.htm.

ERG (2005b) (European Regulators Group for Electronic Communications Networks). Report on experiences with market definition, market analysis and applied remedies, ERG (05) 51. Retrieved on 12 April, 2007, from http://erg.eu.int/documents/index_en.htm.

ERGEG (2005) (European Regulators Group for Electricity and Gas). Report on transparency of energy prices, bills and contracts, E05-CFG-02-07. Retrieved on 20 March, 2007, from http://www.ceer-eu.org/portal/page/portal/ERGEG_HOME/ERGEG.

ERGEG (2006) (European Regulators Group for Electricity and Gas). Assessment of the development of the European energy market, E06-MOR-02-03. Retrieved on 20 March, 2007, from http://www.ceer-eu.org/portal/page/portal/ERGEG_HOME/ERGEG.

EU Commission (2005). Evaluation of the performance of the network industries providing services of general economic interest, SEC(2005) 1781, 20.12.2005: Brussels.

EU Commission, DG Competition (2007). Report on energy sector inquiry, SEC(2006) 1724, 10.1.2007: Brussels.

Eurobarometer(Special Surveys), Retrieved on various dates from 10-23 January, 2007, from European Commission site at http://ec.europa.eu/public_opinion/archives/eb_special_en.htm.

Fiorio, C. V., M. Florio, S. Salini and P. Ferrari (2007). ‘Consumers’ attitudes on services of general interest in the EU: accessibility, price and quality 2000-2004’. Social Science Research Network Electronic Paper Collection. Retrieved on 21 January, 2007, from http://ssrn.com/abstract=958939 .

Geradin, D. (2006). ‘The liberalization of network industries in the European Union: where do we come from and where do we go’. Annual Report of the European Regulation for Electricity and Gas, Prime Minister’s Office, Economic Council of Finland: Helsinki.

Groningen Growth and Development Centre (2005). 60-Industry Database. Data retrieved on 17 December, 2006, from http://www.ggdc.net/.

Jarrell, G.A. (1978). ‘The demand for state regulation of the electric utility industry’. Journal of Law and Economics, 21(2), 269-95.

Lipsey, R. G. (2007). ‘Reflections on the general theory of second best at its golden jubilee’. Retrieved on 18 April, 2007, from http://www.sfu.ca/~rlipsey.

Lipsey, R. G. and K. Lancaster (1956). ‘The general theory of second best’. The Review of Economic Studies, 24(1), 11-32.

Mitra, A., D. Stoler and Lin, T-C (2005). ‘Deregulation of the electric utility industry: an empirical study’. Public Finance and Management, 5(3), 439-453.

Martin, R., M. Roma, and I. Vansteenkiste (2005). ‘Regulatory reforms in selected EU network industries’. European Central Bank Occasional Paper Series, no. 28.

Napolitano, G. (2005). ‘Towards a European legal order for services of general economic interest’. European Public Law, 11(4), 565-581.

Rakowski, J. (1980). ‘The theory of second best and the competitive equilibrium model’. Journal of Economic Issues, 14(1), 197-207.

Scherp J. (2005). ‘Railway (de-)regulation in EU member states and the future of European rail’. CESifo Dice Report 4/2005. Retrieved on 16 April, 2007, from http://ec.europa.eu/transport/rail/overview/articles_en.htm. Thomas, S. (2004). ‘Evaluating the British model of electricity deregulation’. Annals of Public and Cooperative Economics, 75(3), 367-398.

Ugur, M. (2004). ‘(Re)theorising globalisation and European integration: a political economy approach’. European Political Economy Review, 2(1), 74-103.

Upadhyaya, K.P. and F. G. Mixon Jr. (1995). ‘Regulatory capture and the price of electricity: evidence from time series estimates’. International Journal of Social Economics, 22(1), 16-23.

Upadhyaya, K.P. and J. E. Raymond (1994). ‘What can regulators regulate? The case of electricity revisited’. Department of Economics, Auburn University, Auburn, AL.