The art of noise: recent regulatory developments in measuring efficiency

There is significant uncertainty, or ‘noise’, involved in estimating the potential for improving efficiency. However, it is unclear whether the approaches taken by regulators fully take this into account. Alan Horncastle, Managing Consultant at Oxera, examines this issue with particular reference to the UK postal industry, and considers the implications for other regulated industries including water and electricity.

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Bus deregulation: driving a third phase?

The British bus industry has reached a fork in the road: in one direction, it faces a regulated or franchised future, and in the other, the possibility that ‘deregulation’ might be about to address market failure and deliver significant growth. Dr Matthew Bradley, Group Marketing Manager, Go-Ahead Group, explains why the industry should opt for the deregulation route.

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Feasibility study for econometric assessment of the impact of tax credits on R&D expenditure

An exploration of the feasibility of an econometric analysis of the impact of R&D tax credits on R&D expenditure. The objectives of Oxera’s research were to:

provide HMRC with a clearer understanding of the data currently available for empirical or econometric analysis;
construct a matched dataset of identified R&D tax credit data sources, to ascertain if it could be used for an econometric study;
undertake a feasibility assessment of whether the dataset is of sufficient quality to support robust empirical analysis.

Please click here to be taken to the HMRC website where you can download a copy of these reports (Research Report 19).

The first stage of the analysis, the academic literature review, focused on the approaches adopted by previous researchers, the limitations of their methods, and their results. This review provided valuable insights into the feasibility of undertaking an econometric analysis of R&D tax incentives in the UK. Subsequently, Oxera assessed whether the data currently available would enable a robust econometric analysis of the impact of R&D tax credits. A dataset was created, containing information on whether firms have an R&D tax credit, the amount of R&D expenditure in that firm, and other explanatory factors that may influence levels of R&D expenditure (such as turnover). After analysing the dataset, Oxera was able to advise the client on approaches that it could take in facilitating a robust econometric evaluation of R&D tax credits.

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The net neutrality debate: the end of the world (wide web) as we know it?

Do regulators need to impose constraints on the pricing structure of Internet service providers to foster competition, investment and innovation? For content providers such as Yahoo! and Amazon, the answer is yes; for infrastructure and Internet service providers such as AT&T and Deutsche Telekom, the answer is no. This article reviews the economic underpinnings of both sides of the ‘net neutrality’ debate, and asks: does Europe need net neutrality regulation?

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Damaged interest: the choice of discount rate in claims for damages

Quantifying damages in court proceedings is a hot topic, particularly in the area of competition law where European policy has been to encourage more private claims. Various financial and economic issues arise in these cases—one of which is the choice of discount rate used to adjust past damages to their present value. Several approaches have been proposed, and the choice of discount rate can make a substantial difference to the amount of damages ultimately awarded.

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European emissions trading: is it working?

The EU Emissions Trading Scheme has established a carbon market worth around €40 billion per year, with further extensions planned. However, the most obvious carbon savings so far are happening outside the EU, and the disputes around Phase II caps look set to test the political acceptability of high carbon prices. Martin Brough, Oxera Director, explains why.

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Towards debt? The impact of pension regulations on capital markets

Regulatory and accounting changes implemented in the UK since 2001 have altered the way in which firms’ defined-benefit pension schemes affect their profit-and-loss statements and cash flows. Market-based discount rates in estimating pension liabilities, requirements to reflect pension funds’ positions on balance sheets, and regulations requiring firms to close pension gaps, have all led to greater incentives to allocate pension fund investments to long-term fixed-income securities. How has this affected the asset-allocation behaviour of UK pension schemes, and could it affect wider capital markets and the real economy?

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Open access: the price of fair competition

A recent High Court decision regarding the GB rail regulator’s access charging regime supports the regulatory treatment of open access operators competing alongside franchisees. However, by suggesting the need for a level playing field for all operators seeking access, the decision arguably implies an effects-based test for price discrimination. This could potentially set a precedent for EU competition policy, which has to date tended to focus on the form of discrimination. Nonetheless, strict limits to the implementation by infrastructure managers of alternative forms of price discrimination are likely to remain

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Deconstructing entry barriers: crystal ball gazing or hard economics?

Assessing barriers to entry is a key part of a competition case, but how to define and measure them is often controversial. This article explores opportunities for competition authorities to test entry barriers, asking: should competition authorities rely on the views of potential entrants to determine whether entry will occur? In what way can entry barriers be quantified? And how can the strength of potential entrants be judged?

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Who’s in good health? Measuring performance in the NHS

Public spending on healthcare has increased significantly over the past five years. One way to assess the benefits of such spending is to look at how well trusts can convert the increased resources into improved healthcare outcomes. This article reviews a number of suggested approaches to measuring performance in the UK’s NHS and provides an illustrative analysis of the efficiency of the so-called acute trusts.

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