Journal of Regulatory Economics

, Volume 42, Issue 3, pp 308–335 | Cite as

Merchant and regulated transmission: theory, evidence and policy

  • Stephen Littlechild
Original Article


Economists acknowledge the problems of regulated transmission but have different views on the likely efficiency of merchant transmission. This paper first examines the evidence on alleged market failure and regulatory failure as experienced in practice in Australia, where there have been both regulated and merchant interconnectors. Merchant transmission has generally not exhibited the standard examples of market failure but regulated transmission generally has exhibited the standard examples of regulatory failure. Imperfect information—more specifically, in the form of lack of coordination—has often been a challenge whatever the approach. Experience in Argentina suggests that transactions costs are not a barrier to negotiation and efficient investment determined by users. Policy should seek to improve the regulatory framework and to remove barriers to private initiatives. An important role for regulation is to facilitate coordination between potential providers and users of transmission lines.


Merchant transmission Regulation Negotiated settlements Market failure Regulatory failure Public contest method 

JEL Classification

L33 L51 L94 


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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.University of BirminghamBirminghamUK
  2. 2.Judge Business SchoolUniversity of CambridgeCambridgeUK

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