Pablo T. Spiller

Folk theorems on transmission access: Proofs and counterexamples

Nodal prices, congestion revenues, transmission capacity rights, and compensation for wire ownership are key concepts used to formulate claims about proposals to organize competitive and open transmission access. Underlying those claims are implicit assertions (folk theorems) concerning the regulation of transmission access, the determination of power flows, properties of economic dispatch, and the operations of competitive nodal markets for power. The paper has two objectives. We first formulate these folk theorems as explicit mathematical assertions. We then prove that some of these assertions are true, and we present counterexamples to other assertions.The counterexamples are interesting because they negate plausible propositions, including: (1) uncongested lines do not receive congestion rents (defined through node price differences); (2) nodal prices clear markets for power only if the allocation is efficient; (3) in an efficient allocation power can only flow from nodes with lower prices to nodes with higher prices; (4) strengthening transmission lines or building additional lines increases transmission capacity; (5) transmission capacity rights are compatible with any economically efficient dispatch.

Fare Determination in Airline Hub-and-Spoke Networks

This article provides the first evidence linking airfares to the structure of airline hub-and-spoke networks. The hypothesis tested is that any force that increases traffic volume on the spokes of a network will reduce fares in the markets it serves. This effect arises because of economies of density on the spokes. For example, since a large network (as measured by the number of city pairs that it connects) is expected to have low costs per passenger as a result of high traffic densities, fares in the individual markets served should be low, other things equal. Similarly, holding size fixed, a network that connects large cities should have higher traffic densities on its spokes (and thus lower fares in individual markets) than one serving small cities. Our empirical analysis supports these predictions. We find that network characteristics are important determinants of fares in 4-segment city-pair markets (these are markets requiring a connection at the hub). Furthermore, our empirical model predicts that the TWA-Ozark and Northwest-Republic mergers should have reduced fares in the 4-segment markets served by the hubs at St. Louis and Minneapolis.

Competition and mergers in airline networks

Abstract This paper examines the effect of competition in airline hub-and-spoke networks. Because of the cost complementarities inherent to such networks, competition in a single market usually creates negative network externalities, causing a reduction in traffic throughout the network. Furthermore, competition may also imply a reduction in total social surplus. The paper suggests that antitrust policy towards airlines operating hub-and-spoke networks should be reconsidered.

Nodal prices and transmission rights: A critical appraisal

This article challenges several prevalent claims about the role of nodal prices and transmission rights which underlie Poolco proposals. The application of nodal prices for pricing transmission services in networks with parallel path flows can have perverse consequences due to the interaction of power flows.

Competition and Entry in Small Airline Markets

EMPIRICAL studies of deregulated airline markets usually address two policy questions. First, did airline deregulation make city-pair markets competitive? Second, should postderegulation mergers and the emergence of hub and spoke systems raise antitrust concerns? Several recent empirical analyses of airline ticket prices conclude that airline deregulation did not make city-pair markets perfectly contestable.1 Some of these studies also conclude that potential competition at origin and destination airports does not promote much price competition.2 These studies typically draw their conclusions from regressions that uncover a positive correlation between average market fares and measures of market or

Judicial Independence in Unstable Environments, Argentina 1935-1998

Argentinas constitution and electoral rules promote a fragmented polity. It is in those environments that inde- pendent judiciaries develop. Instead, most analysts do not consider the Argentina judiciary as independent. In this article we attempt to explain this contradiction by showing that this perception is inappropriate. We de- velop a test of the hypothesis that the judiciary is independent by empiri- cally examining the political incen- tives faced by individual justices in their decision making. Our results show an often-defiant Court subject to constraints. Our measure of defi- ance is the probability of a non- aligned justice voting against the government. We find that judicial decision making was strategic. The probability of voting against the gov- ernment falls the stronger the control of the president over the legislature, but increases the less aligned the justice is with the President. Thus,

Managing Supplier Switching

To examine the potential gains from a second production source, we examine how source switching is optimally structured. The model focuses on a purchaser who manages the acquisition process, an incumbent supplier, and a potential entrant or second supplier. Because the costs of the incumbent and second source are correlated, the entrants costs provide an informative signal about the incumbents costs. Judicious use of this information allows the purchaser to limit the incumbents rents. Because entry also provides an alternative source of production, however, there are important distinctions between the optimal entry policy and the optimal auditing policy. One of our findings is that it may be optimal to replace the incumbent, even when the entrant is known to have higher production costs.

Political Institutions and Electric Utility Investment: A Cross-Nation Analysis

The likelihood that a government will meet its promises varies with the structure of a nation9s political institutions. Where multiple independent actors wield veto power over potential policy changes, macroeconomic, tax, and regulatory stability will be enhanced—thus reducing the variance on an investment project9s expected return. This relationship is shown to hold for an industry with extremely high sunk costs and politicization, namely, electric utilities. Managers considering investment in infrastructure projects should therefore evaluate the investment proposal not only on its explicit terms, but also on the likelihood that the government will honor them.

The Effects of Entry Regulation on Oligopolistic Interaction: The Uruguayan Banking Sector

This article develops a methodology to test alternative oligopoly models and to analyze the effects of entry restrictions on conduct. This methodology is applied to the Uruguayan banking sector, whose legal entry barriers were significantly relaxed during the late 1970s. The results are consistent with a von Stackelberg type of industry where the degree of oligopolistic interaction among the leading firms is reduced as a consequence of the relaxation of the legal entry barriers.

The Institutional Foundations of Public Policy in Argentina

Part I. An Intertemporal Approach to Policymaking: 1. Sketch of the framework and implications 2. A theory of intertemporal political cooperation Part II. The Workings of Political Institutions, Policymaking, and Policies in Argentina: 3. Congress, political careers, and the provincial connection 4. Federalism, Argentine style 5. The Supreme Court 6. The bureaucracy 7. The nature of public policies in Argentina.