Working Paper Series,
Research Institute of Industrial Economics

Abstract: The capacity of the transmission network determines the extent of integration of a multinational energy market. Cross-border externalities render coordination of network maintenance and investments across countries valuable. Is it then optimal to collect powers in the hands of a single regulator? Should a common system operator manage the entire network? I show that optimal network structure depends on (i ) how the common regulator would balance the interests of the different member states; (ii ) how the gains from market integration vary across countries; (iii ) network characteristics (substitutability versus complementarity); and (iv ) the social cost of operator rent.

Keywords: Multi-national Energy Market; Transmission; Supranational Regulation; System Operation; Multi-contracting

JEL-codes: D62; D82; L51; L94

38 pages, June 1, 2010

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