This paper uses a competitive-equilibrium housing-market model to evaluate the role that interest rates played in the U.S. housing boom and bust. The model features stochastic construction costs, disposable income, interest rates, and population, and endogenously determines the supply of...

This paper shows how scale economies affect welfare-maximizing regulation and regulated firms' investment behavior. Price-regulated firms take less advantage of scale economies than social planners, with greater investment distortions for greater economies of scale. Price caps should be below...

Generators supplying electricity markets are subject to volatile input and output prices and uncertain fuel availability (water flows in the case of hydro and gas availability in the case of thermal plants). We show that a price-taking generator will only generate when the output price exceeds...

We present a model featuring irreversible investment, economies of scale, uncertain future demand and capital prices, and a regulator who sets the firm's output price according to the cost structure of a hypothetical replacement firm. We show that a replacement firm has a fundamental cost...

In infrastructure industries the permitted revenue of a regulated firm depends crucially on the choice of rate base and the allowed rate of return. In this paper we examine the impact of these two variables on the timing of the regulated firm's investment. Since the firm bears all the cost of...

We show that regulators' price-setting, rate base, and allowed rate of return decisions are inextricably linked. Once regulators switch from traditional rate of return regulation, the irreversibility of much infrastructure investment significantly alters the results of the usual approach to...

Commodities are physical, not financial, assets. We investigate the effects on equilibrium spot-price behavior of frictions in the storage process, which introduce an element of irreversibility to storage decisions and lead to periods when storage operators do not trade in the spot market. We...

This paper uses a new model of a competitive electricity market to investigate the role of storage in markets dominated by hydro generation. Competition amongst generators leads to an endogenous shadow price of stored water, which facilitates the efficient intra-day and inter-season substitution...