regulation is justified by the presence of externalities, public goods, asymmetric information and natural monopoly. These defects are the cause of observed inefficiencies in the markets.
They say there are externalities when the actions of an agent directly influence choices (total production or consumption) of another agent (SALANIE, 1998). These actions are carried out of the market. Externalities are positive (negative) when the actions of an agent leads to an improvement (decrease) welfare of another agent.
The need for regulation is therefore required when externalities are negative. In the electricity sector in Cameroon, the importance of the regulator has been felt after the privatization of SONEL that the decline in production that was causing multiple power cuts have adversely affected the well- being of consumers.
Public goods are goods that, once created, are available to all unconditionally. They possess the double property of non-exclusion and non-rivalry (VARIAN, 2000). The first refers to the inability to exclude anyone from using a service, including individuals who do not contribute to its financing. The second reflects the fact that this property can be used simultaneously by multiple agents, without the amount consumed by one decreases the amount still available to others.
As a public good, electricity should be accessible to all individuals, which is unfortunately not the case, especially in rural areas. The role of the regulator in this sector is to promote universal access to electricity, so that nobody is excluded from the consumption of this good public utility.
The problem of information asymmetry is often observed in a relationship between two actors (both principal and agent) bound by a contract. This problem leads to adverse selection and moral hazard (VARIAN, 2000).
The moral hazard refers to situations where one party to a contract does not behave the way it has undertaken, and without the other party can stop him. This is called when a problem behavior''hidden''. Adverse selection refers to situations where one side of the market can not observe the''type''or quality of property located on the other side of the market. One speaks in this case a hidden problem''type''.
The problem of hidden behavior was observed after the privatization of SONEL. Indeed, the contract required the divestiture of AES-Sonel to invest in the sector in order to increase the supply of electricity. But the lack of investment caused a less rapid increase in production compared to the consumption, which has led to rationing.
A business is a natural monopoly when its average costs are decreasing (returns to scale) for any given level of output. In these circumstances, only one firm, satisfying all the demand will lower costs to two or more companies sharing the application. Formally, let q1, ... ..., qk production of k firms, such that q1 + q2 + ... + qk = Q if each firm has cost function C (qi), then C (Q) is strictly less than C (q1) + C (q2) + ... ... ... ... .... + C (qk). Such a cost function is said to be subadditive. This situation occurs in industrial activities, such as distribution of gas and electricity, which have high fixed costs. AES-Sonel
enjoys such a position in the electricity market in Cameroon, which should encourage them to set their prices equal to marginal cost and marginal revenue. To avoid this situation, which is beneficial to the company, the regulator's role is to force it to set rates that will provide him cover its costs.
They say there are externalities when the actions of an agent directly influence choices (total production or consumption) of another agent (SALANIE, 1998). These actions are carried out of the market. Externalities are positive (negative) when the actions of an agent leads to an improvement (decrease) welfare of another agent.
The need for regulation is therefore required when externalities are negative. In the electricity sector in Cameroon, the importance of the regulator has been felt after the privatization of SONEL that the decline in production that was causing multiple power cuts have adversely affected the well- being of consumers.
Public goods are goods that, once created, are available to all unconditionally. They possess the double property of non-exclusion and non-rivalry (VARIAN, 2000). The first refers to the inability to exclude anyone from using a service, including individuals who do not contribute to its financing. The second reflects the fact that this property can be used simultaneously by multiple agents, without the amount consumed by one decreases the amount still available to others.
As a public good, electricity should be accessible to all individuals, which is unfortunately not the case, especially in rural areas. The role of the regulator in this sector is to promote universal access to electricity, so that nobody is excluded from the consumption of this good public utility.
The problem of information asymmetry is often observed in a relationship between two actors (both principal and agent) bound by a contract. This problem leads to adverse selection and moral hazard (VARIAN, 2000).
The moral hazard refers to situations where one party to a contract does not behave the way it has undertaken, and without the other party can stop him. This is called when a problem behavior''hidden''. Adverse selection refers to situations where one side of the market can not observe the''type''or quality of property located on the other side of the market. One speaks in this case a hidden problem''type''.
The problem of hidden behavior was observed after the privatization of SONEL. Indeed, the contract required the divestiture of AES-Sonel to invest in the sector in order to increase the supply of electricity. But the lack of investment caused a less rapid increase in production compared to the consumption, which has led to rationing.
A business is a natural monopoly when its average costs are decreasing (returns to scale) for any given level of output. In these circumstances, only one firm, satisfying all the demand will lower costs to two or more companies sharing the application. Formally, let q1, ... ..., qk production of k firms, such that q1 + q2 + ... + qk = Q if each firm has cost function C (qi), then C (Q) is strictly less than C (q1) + C (q2) + ... ... ... ... .... + C (qk). Such a cost function is said to be subadditive. This situation occurs in industrial activities, such as distribution of gas and electricity, which have high fixed costs. AES-Sonel
enjoys such a position in the electricity market in Cameroon, which should encourage them to set their prices equal to marginal cost and marginal revenue. To avoid this situation, which is beneficial to the company, the regulator's role is to force it to set rates that will provide him cover its costs.
Source: My DEA
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