Browsing by Author "Evans, Lewis"

Now showing 1 - 20 of 86

Open Access
The Accident Compensation Scheme and Unfunded Liability
(Te Herenga Waka—Victoria University of Wellington, 1998) Evans, Lewis
The ACC is currently funded on a pay-as-you-go (pay-go) basis. This means that levies on participants in the scheme cover only its current period operating costs. In the past these costs have been lower than the amount required to fully fund the cost of the new claims being added to the ACC each year. This has created a $7.5 billion unfunded liability that the government must address as part of any long term reform of the ACC. The introduction of competitive private delivery of the Employers' Account of the ACC requires that all future participation by employers be on a fully funded premium basis. What should the government do with the unfunded liability of the Employers' Account at the time that competition is introduced? This paper argues that if the government wants to create an efficient accident compensation market for employers it should not levy current employers for this unfunded liability. The government should not in any way entangle the funding of past liabilities with the operation of the ongoing competitive market.
Open Access
Accident Compensation: The Role of Incentive Consumer Choice and Competition
(Te Herenga Waka—Victoria University of Wellington, 2003) Quigley, Neil; Evans, Lewis
With the exception of the introduction of experience-rated premiums the incorporation of the term "insurance" in the title of the 1992 legislation and the short-lived reforms to the structure of workplace accident compensation in 1998 New Zealand's accident compensation scheme has continued to adhere to the principles laid down in the Woodhouse Report. In particular public monopoly provision comprehensive coverage and mandatory purchase separation from other segments of the market for personal risk (where private insurance companies operate) and cross-subsidies between different categories of insured risk were explicit components of Woodhouse's conception of the scheme. Retention of these aspects of the scheme has been justified by the claim that accident compensation is a component of the social welfare net rather than an insurance scheme and that the social welfare approach is superior from the point of view of those covered by the scheme.This paper reviews three of the economic issues raised by the structure of our accident compensation scheme: the role of incentives the relationship with the broader insurance market and the costs of government monopoly provision. We use our analysis of these issues to consider the veracity of the claim that potential accident victims in New Zealand benefit from our adherence to the principles laid out by the Woodhouse Report. We conclude that the current structure of our scheme creates perverse incentives that substantially reduce its efficiency while also denying those covered by the scheme the potential benefits that would come from consumer choice among competing providers offering a broader range of risk products.
Open Access
Alternating Currents or Counter-Revolution? Contemporary Electricity Reform in New Zealand, VUW Press 2005 , 1-346
(Te Herenga Waka—Victoria University of Wellington, 2009) Evans, Lewis; Meade, Richard
The authors place New Zealands current institutional arrangements for its electricity sector within the context of successive waves of economic reform. They compare these arrangements with developments internationally, drawing together lessons for future policymaking both in New Zealand and overseas. This book is a work of political economy that carefully analyses the interplay between technology, economics and politics that has at different times driven the sector. Controversially, the authors argue that the market reforms of the 1980s and 1990s provided greater supply security than the more centralised arrangements that prevailed in the past - and that New Zealands reversion to more centralised and political control since the late 1990s has resulted in an unsustainable half-way house that hinders private electricity investment and reinforces this trend. Themes of the book are: Does electricity sector liberalisation help politicians, power companies and consumers? Will central planning or market forces be more likely to ensure supply security? Is regulation or ownership the best way to protect consumers from electricity monopolies? Can electricity reforms succeed with centralised transmission planning? What can be learned from 20 years of electricity reform in New Zealand?
Open Access
An Analysis of the Reserve Bank of New Zealand's Policy on the Incorporation of Foreign Banks
(Te Herenga Waka—Victoria University of Wellington, 2002) Quigley, Neil; Evans, Lewis
In this study we analyse the objectives underlying the Reserve Bank's policy ofmandatory local incorporation and provide an assessment of the effectiveness of the policy in meeting these objectives. We review both the legal and regulatory framework within which branches of foreign banks now operate in New Zealand and we review the international literature on the costs benefits and efficiency tradeoffs associated with a policy of mandatory local incorporation. We consider the consistency of mandatory local incorporation with the Reserve Bank's current approach to the regulation of financial institutions and we show that the governance structure that is imposed on New Zealand banks by mandatory local incorporation is likely to reduce the efficiency of their operations. Finally we examine a number of approaches that may meet the current concerns of the RBNZ at lower cost than a policy of mandatory local incorporation.
Open Access
Application of Cost-Benefit Analysis Under Competition Law: The Gas Enquiry
(Te Herenga Waka—Victoria University of Wellington, 2006) Evans, Lewis
Lew Evans presented Application of Cost-Benefit Analysis Under Competition Law: The Gas Enquiry at the Competition Law and Study Institute conference in Wellington in August 2006.
Open Access
Assessing the Integration of Electricity Markets Using Principal Component Analysis: Network and Market Structure Effects
(Te Herenga Waka—Victoria University of Wellington, 2006) Evans, Lewis; Guthrie, Graeme; Videbeck, Steen
The major difficulties in assessing market power in electricity wholesale spot markets mean that great weight should be placed upon assessing market outcomes against the fundamental determinants of supply demand and competition. In this spirit we study whether the New Zealand market has been a national market or a set of local markets since its inception in 1996. Electricity markets generally have loop flows that require simultaneous assessment of prices at all nodes thereby limiting the informativeness of pair-wise nodal comparisons. We introduce principal component analysis to this application and show that it is a natural tool for the qualitative and quantitative assessment of the presence of local markets. We find that increased competition induced some separation into local markets that was eliminated by transmission enhancement and the introduction of generation downstream from the constrained circuits. For most of the period New Zealand has had one national market.
Open Access
Asset Stranding is Inevitable: Implications for Optimal Regulatory Design
(Te Herenga Waka—Victoria University of Wellington, 2003) Evans, Lewis; Guthrie, Graeme
The irreversibility of much infrastructure investment means that some assets will stop earning revenue before the end of their physical lives; they will be stranded. Under traditional rate of return regulation firms are guaranteed the ability to recover the costs of investment insulating them from the consequences of asset stranding. Under modern incentive regulation firms are allowed to earn revenue just sufficient to cover the costs of a hypothetical efficient firm which provides services at minimum cost exposing them to the risk of asset stranding. By actively encouraging competition regulators increase this risk. We suggest two conditions applicable to both regimes which must be met if regulation is to be "reasonable": the regulated firm must not lose value from investment and it cannot collect more revenue than would the lowest cost alternative provider. This implies that regulated firms should be allowed to earn the riskless rate of return on the historical cost of their assets under rate of return regulation and a different (generally higher) rate of return on the replacement cost of their assets under incentive regulation. The risk premium depends on both the systematic and unsystematic risk of demand shocks. Since customers bear the risk of asset stranding under rate of return regulation and shareholders bear this risk under incentive regulation welfare is higher under incentive regulation as long as customers are more risk-averse than shareholders. We show that when there is a choice between reversible and irreversible technology there is no price specification under rate of return regulation that will induce the firm to choose the efficient bundle of technology while under incentive regulation the firm will choose the efficient mix of technologies. That is incentive regulation allocates the risk of asset stranding efficiently and also gives firms the incentive to reduce this risk to efficient levels. Finally incentive regulation has less demanding information requirements than traditional rate of return regulation.
Open Access
Capital Market Integration: The Structure of the New Zealand Economy and its Capital Markets
(Te Herenga Waka—Victoria University of Wellington, 2009) Evans, Lewis
The purpose of this review is to set out how New Zealand's equity markets relate to the economy how this relationship varies across countries of a similar size to New Zealand and how it relates to certain institutional arrangements. The review is brief reflecting the specification of this work for the taskforce that recognised in advance the potential paucity of data of sufficient quality to enable definitive inference. The investigation confirmed the severe data limitations associated with meaningful cross- country comparisons of institutional arrangements - for example the extent to which economic activity is conducted by entities that issue equity and if so whether or not it is traded - let alone their linkage with economic performance. The OECD puts together a report on each country infrequently usually focusing on a single utility and often with different focuses that would make them hard to compare. Often these are qualitatively descriptive and seek to propound guidelines (see for example OECD (2005)). Comparison of institutions is an inherently difficult subject for cross-country comparisons. At one level definitions vary widely across countries - e.g. New Zealand does not have a specific company category for cooperatives in contrast to many other countries - and at another level the structures themselves have to be understood in detail before inferring their role in equity markets. Taking the example of cooperatives it has been a theme of Michael Cook (for example Cook (2003) and Sykuta and Cook (2001)) that the pure form of cooperative is rare and that under this label there are many varieties of organisational form that attempt to solve market power governance and ownership issues in a wide range of settings; such that the label "cooperative" spans participation and nonparticipation in equity markets. Further forms of cooperative participation in equity markets vary to an extent that has various implications for their effects on organisational performance their contribution to the ownership market and the liquidity of equity markets. Firms labelled State Owned Enterprises (SOEs) also have this feature of wide variation (see Vagliasindi (2008)). It means that it is not sufficient to assess institutional arrangements by their labels or even a subset of the features of them if cross-country comparative work is to be useful.
Open Access
Climate and the New Zealand Electricity Spot Market
(Te Herenga Waka—Victoria University of Wellington, 2010) Evans, Lewis
Presentation by Lewis Evans at the Energy Roundtable Wellington on 8 September 2010.
Open Access
Commodity Price Behavior With Storage Frictions
(Te Herenga Waka—Victoria University of Wellington, 2007) Evans, Lewis; Guthrie, Graeme
We present a competitive storage model of commodity prices featuring frictions that introduce an element of irreversibility into storage decisions. This leads to situations in which speculators do not trade in the spot market even though total storage is positive. As a result the market value of the stored commodity which is determined in the (financial) market for ownership of firms operating storage facilities can diverge from the spot price. Such price separation leads to the existence of an endogenous convenience yield which we show equals the expected excess return on a real option embedded in each unit of the stored commodity. The outputs of our model are consistent with the stylized facts regarding commodity price distributions including serial correlation and GARCH characteristics. Samuelson's hypothesis - that forward prices are less volatile than spot prices - does not hold in general.
Open Access
Common Elements in the Governance of Deregulated Electricity Markets, Telecommunications Market and Payment Systems
(Te Herenga Waka—Victoria University of Wellington, 1998) Quigley, Neil; Evans, Lewis
We use the telecommunications industry and electricity market in New Zealand and payments systems in Canada and New Zealand to examine the implications of modern network technology for the organisation and governance of deregulated markets. Our analysis identifies natural monopoly components of networks as the key issue for the governance of these markets. We show how technological change has enhanced the scope for competition and reduced the desirability of public management and regulation in network industries. We argue that where natural monopoly or other problems persist private joint ventures are superior to public sector monopoly as a means of organising the activity. Light-handed regulation in which markets are constrained only by economy-wide competition law provides for the development of efficient private solutions to the special governance problems of network industries.
Open Access
Competition and Pricing the HVDC Element of the Grid
(Te Herenga Waka—Victoria University of Wellington, 2008) Evans, Lewis
This presentation looks at:Discussion of peculiarly grid regulation issues A quick stock take of the state of "onr market": particularly concerning the interisland link Competition and pricing the HVDC interconnection
Open Access
Competition Law in Small Market Economies - Special Application to New Zealand Commentary
(Te Herenga Waka—Victoria University of Wellington, 2006) Evans, Lewis; Arnold, Terence
Slides by Lew Evans and Terence Lawrence presented Competition Law in Small Market Economies - Special Application to New Zealand Commentary at the Competition Law and Study Institute conference held in Wellington August 2006.
Open Access
Competition policy development in New Zealand
(Te Herenga Waka—Victoria University of Wellington, 2013) Evans, Lewis
Competition policy is typically intended to protect competition where workable competition is possible. Conversely, regulation can either preclude competition, or can act as a substitute for competition when workable competition is impossible. Both types of policy can have a significant impact on investment, which in turn affects the evolution (or demise) of competition. This means competition and regulation settings can affect each other, and potentially their own rationale. Electricity systems have particular competition and regulation issues and challenges, and industry changes such as New Zealand's vertical integration of generation and energy retailing present additional complexities.In this seminar Richard Meade argues that there is no single optimal boundary between competition policy and regulation in electricity systems. Instead, any such boundary will evolve over time, reflecting a myriad of factors such as institutional endowments, industry reform paths, the extent of state ownership, and changing technologies. Importantly, the optimal boundary will differ from that prevailing in other network industries such as telecommunications, suggesting that appropriate competition and regulatory policies will differ across industries.
Open Access
Competitive and Centrally Planned Decision Making in the Electricity Industry
(Te Herenga Waka—Victoria University of Wellington, 2003) Quigley, Neil; Evans, Lewis
This supplement was published in May of 2003 and discusses: The Electricity IndustryPrices in the Electricity MarketCentral planning applied to electricity
Open Access
Contracting, Incentives for Breach, and the Impact of Competition
(Te Herenga Waka—Victoria University of Wellington, 1999) Quigley, Neil; Evans, Lewis
In this paper we provide an economic perspective on the application of competition law to contracts.
Open Access
Cooperatives in New Zealand: The Particular Case of Dairy
(Te Herenga Waka—Victoria University of Wellington, 2012) Evans, Lewis
Lew Evans presented this seminar on 3 September to ISCR Members and a delegation of 30 Presidents and Directors of cooperatives of the Brazilian State of Parana drawn mainly from the agricultural and credit sectors including: Coamo - the largest agricultural cooperative of South America. With 41 years of existence and more than 24000 members it processes 3.3% of Brazilás grain and fibre harvests. Batavo - http://bit.ly/AqmQ4d (dairy) Frimesa - http://bit.ly/ye0Zty (diversified) Sicredi - with more than 1.8 million member shareholders. Sicredi unites more than 119 credit unions and institutions all over Brazil with more than 1100 branches of the largest agricultural cooperative of South America. This seminar analysed the economic place of the cooperative organisational form in a modern economy. It will draw on New Zealand cooperative firms' experiences and in particular appraise the evolution of the New Zealand dairy industry to the present day. Professor Lew Evans is a Distinguished Research Fellow at The NZ Institute for the Study of Competition and Regulation.
Open Access
Cost Shifting the single buyer model with price discrimination' by Lew Evans
(Te Herenga Waka—Victoria University of Wellington, 2013) Evans, Lewis
This Current Comment was posted by Lew Evans and analyses the current proposal for a single buyer and price discrimination.
Open Access
The Critical Importance of Information: Incentive Regulation and its Application in Electricity
(Te Herenga Waka—Victoria University of Wellington, 1998) Evans, Lewis
This paper outlines the key distinguishing features of light- and heavy-handed regulation. It Provides an analysis of the importance of informational issues for the conduct of commerce Provides an analysis of informational issues for the design and operation of incentive regulation Uses incentive regulation to assess heavy and light-handed regimes and Analyses certain of the regulatory issues of the electricity market.
Open Access
A Critique of Wolak's Evaluation of the NZ Electricity Market: Introduction and Overview
(Te Herenga Waka—Victoria University of Wellington, 2012) Hogan, Seamus; Jackson, Peter; Evans, Lewis
This paper is the first in a symposium of papers that examine the 2009 report by Frank Wolak into the New Zealand electricity market. The Wolak report concluded that there had been a cumulative total of $4.3b (NZD) of overcharging in the New Zealand wholesale market over a period of seven years. In this paper we introduce the Wolak findings in the context of the salient features of the New Zealand market and explain that this headlinefigure is highly sensitive to some (quite unrealistic) assumptions about the structure of this market. The papers that follow this introduction examine Wolak's methodology and its empirical application.