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Utility regulation and risk allocation: the roles of marginal cost pricing and futures markets

Abstract:

The paper assesses the welfare effects of different ways of allocating input price risk between a regulated utility, consumers and speculators in a futures market. A risk-averse utility setting a fixed retail price requires a price that exceeds expected marginal cost, unless an efficient futures market is available. The firm bears no risk when input price risk is transferred to consumers, but consumers may not like price risk. When a futures market is available to consumers marginal cost pric...

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Publication status:
Published

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Publisher:
University of Oxford
Series:
Department of Economics Discussion Paper Series
Publication date:
2002-03-01
Paper number:
100
Keywords:
Pubs id:
1144329
Local pid:
pubs:1144329
Deposit date:
2020-12-15

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