||archives: Vol. 1, Issue 1 - March 2002
Competitive Bidding for a Long-Term
Electricity Distribution Contract
The Review of Network Economics
Volume 1, Issue 1 - March 2002, pp 1-38
||Demsetz (1968) and Posner (1972) suggested competitive bidding as an alternative to natural monopoly regulation. Williamson (1976) and Goldberg (1976) argued that the problems of natural monopoly regulation are inherent in long-term investment under uncertainty. Long- and short-term franchising contracts may be more problematic than regulation. This paper reviews the literature and UK experience. It examines London Underground's recent long-term (thirty-year) contract for its electricity distribution network. This has avoided the Oakland CATV problems described by Williamson, but involves considerable resources to monitor. Competitive contracting seems feasible and advantageous versus public provision. Its merits versus utility regulation warrant further consideration.
Keywords: Franchise bidding, contracting out, natural monopoly, electricity, regulation, Public Finance Initiative.
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