The Impact of Who Decides the Rules for Network Use: a 'common Pool' Analysis of the Investment Dynamics in Different Gas Network Regulatory Frames
Abstract: The liberalization of the natural gas industry has been based on the idea that the same infrastructure may be used by different gas owners. Different players using the same resources can give raise to ‘commons dilemmas’, which is defined by a conflict between individual rationality and group rationality. The individual rationality leads to an outcome that is not rational from the perspective of the group. To avoid 'commons' inefficiencies, it is necessary to establish rules that constrain the players’ use of the network. The rules of a 'common pool' may be established through external authority or by the users themselves. In gas industries, the regulators play the role of external authority. The definition of rules by the users themselves is implemented through players’ agreements. In the first case the access is completely opened and the same set of rules is applied to every player (common carriage). In the second case, the design of a system of rights is based on players’ commercial agreements (contract carriage). Traditionally, the choice is made paying attention to the impact of the rules on the allocation of existent resources (appropriation) and taking into account only an average consumer. We show that, as proposed by the common pool theory, the use of average consumer preferences to define the rules of infrastructure may result in inefficient output. Moreover, we show that there is also the dynamic impact of the choice of carriage system. One of the main incentives for new investment is the use of the current infrastructure. As the carriage system impacts on the use of the infrastructure, it also has consequences on the long-term dynamics of the gas infrastructure. We compare investment signals in EU industries, based on common carriage systems, and in USA, based on contract carriage systems. The analysis allows us to identify missing economic signals in the EU regulatory framework.
