The regulation of licensed taxi and PHV services in the UK

Oxera was commissioned by the Office of Fair Trading to analyse consumers’ valuation of different aspects of taxi services and to enable calculations of the effect of taxi regulation on consumer welfare. To inform the design of a stated preference survey, a revealed preference exercise was undertaken, which provided guideline estimates for the levels of the attributes, and their likely relative importance. The stated preference survey was constructed using the outputs from the revealed preference survey and other information on taxi markets, and the survey design was tested through the use of a pilot survey. 

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Water industry financial model of periodic review of pricing 2004

Using Oxera’s bespoke financial model developed for the Environment Agency, Oxera modelled several hypothetical scenarios for the potential price limits at the 2004 price review of the UK water sector. The model provided a useful and easy-to-use tool for a detailed examination, at the aggregate industry level, of several scenarios regarding the main building blocks (eg, operating expenditure efficiency, capital expenditure, depreciation, and the cost of capital).

In particular, the model assessed the possible impact on price limits of different levels of water quality and the environmental improvement programme. The future prices modelled in the scenarios were particularly sensitive to the cost of capital assumption in the model. Although financeability considerations were not explicitly modelled, this also illustrates the impact, in setting price limits, of potential adjustments to the allowed rate of return to reflect financeability considerations.

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Assessing profitability in competition policy analysis

Oxera was commissioned by the Office of Fair Trading to produce a discussion paper on assessing profitability in the context of competition analysis.

The paper focused on the relevance of profitability and the implications for competition policy, provided a framework for undertaking profitability assessment, and addressed a wide range of practical difficulties that may arise.

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The impact of average zonal transmission losses applied throughout Great Britain

Following a comprehensive cost–benefit study undertaken by Oxera, the Department of Trade and Industry has announced that it is not minded to include average zonal transmission losses (AZTL) in the Great Britain Balancing and Settlement Code that will be established under the British Electricity Trading and Transmission Arrangements.

Oxera carried out full load-flow modelling of the Great Britain electricity transmission networks in conjunction with modelling of the wholesale electricity market to compare outcomes under uniform and zonal loss charging.

The report found that the benefits of AZTL were ambiguous if implementation costs in England and Wales were taken into account, while there would be significant redistributional consequences. However, the analysis found that the impact of AZTL on renewables was likely to be small.

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The interaction between environmental tax and trading systems

The Environment Agency selected Oxera to publish a paper on the interaction of tax and emissions trading systems and present it at a seminar of government economists.

The report included a review of the academic literature on the interaction of tax and trading systems in ‘hybrid systems’. It also explored the dynamic features of such policy mixes. The theory was applied to the UK climate and waste policies in two case studies.

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The non-market value of generation technologies

The government’s 2003 Energy White Paper has environmental and energy-reliability goals at its core. It promises low-carbon energy for the UK, and recognises the tensions this would create in delivering affordable heating for vulnerable households, and competitive energy markets. Much of the task before the government is in quantifying these tensions.

In this report, Oxera provided the first quantification of the value to the economy of improved reliability and lower environmental damage from electricity generation. It estimated the value of avoiding blackouts, and of environmental harm from burning polluting fuels. These hidden benefits have been ignored in previous studies. The results and methodology are now available for stakeholders to scrutinise and to debate.

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Interim review of Network Rail’s track access charges

Oxera acted as the lead economic adviser to Office of the Rail Regulator (ORR) during the interim review of Network Rail’s access charges. This included detailed input to the three main workstreams identified by the ORR as part of the review.

In relation to the assessment of expenditure, Oxera undertook top-down and process benchmarking analysis including the use of international evidence on costs and productivity. For the incentives and financing workstreams, Oxera assisted the ORR in the development of a regulatory framework consistent with the status of Network Rail as a debt-financed company limited by guarantee.

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Cost–benefit analysis of proposed FSA regulation of soft commissions and bundled brokerage

Following on from the research report on soft commissions and bundled brokerage services, Oxera was commissioned by the Financial Services Authority to undertake a cost–benefit analysis of the regulations that it proposed to introduce.

Evidence was gathered from a series of interviews with fund managers, brokers and research companies. Using publicly available financial data and data provided from the surveys of fund managers and brokers, the savings from the likely reductions in the excessive consumption of research and other services acquired by fund managers were estimated. Estimates of compliance costs were made, based on publicly available data and interview evidence.

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An assessment of soft commission arrangements and bundled brokerage services in the UK

Oxera was commissioned by the Financial Services Authority to examine the practice of soft commissions and bundled brokerage services, to establish whether they pose regulatory risks and/or competition problems.

In-depth interviews were conducted with pension fund trustees, fund managers, brokers, research companies, industry experts and regulators, to obtain insight into competitive conditions in the markets concerned, and into the various horizontal and vertical relationships and contractual arrangements between market participants. This was followed by an extensive questionnaire for pension funds, fund managers and brokers. The principal objectives were:

to obtain quantitative evidence to underpin the economic analyses of competition, bundling and soft commissions;
to estimate the order of magnitude of bundling and soft commissions;
to test various hypotheses and statements that have been made about these practices.

In addition, Oxera reviewed the literature on soft commission arrangements, and examined and compared regulations on soft commissions and bundled brokerage services in several major countries.

The Financial Services Authority used the research findings in formulating policy proposals, and subsequently commissioned Oxera to perform a cost–benefit analysis on the proposed set of new rules (see Related items).

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A social time preference for use in long-term discounting

Oxera prepared a comprehensive review of the literature on social time preference rates for HM Treasury’s revised Green Book, published in January 2003.

It set out the cases for and against a change from a constant social discount rate to one that declines over time, illustrating the results with simulations and examples from transport, climate change and nuclear policy. The Treasury then adopted a declining social discount rate using the rate of decline proposed by Oxera.

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