Students on Show Abstracts

Students on Show Abstracts

In his essay, “Could Government Intervention Solve the Power Crisis?” Jason Nichols explains the crisis is not due to insufficient generation capacity but a temporary fuel shortage, i.e. not enough water and gas to run our hydro and gas power stations. The problem is exacerbated by our geography: New Zealand is a long narrow country in a single time zone, meaning peak consumption occurs at the same time everywhere and transporting electricity involves very long distances. Jason argues these problems would be with us whether the electricity market had been deregulated or not. He concludes that while New Zealand is vulnerable to fuel shocks to the electricity industry, when rain and snowfall are lower than expected, the market encourages the most efficient outcome given the fuel available.

Simon Bratt looks at New Zealand’s unique accident compensation scheme from three perspectives. (1) The Law and Economics approach evaluates existing legislation and proposed reforms in terms of whether appropriate incentives are created to minimise accidents and encourage people to take cost justified precautions. (2) The Communitarian perspective views most accidents as the inevitable by-product of an industrialised interdependent society, and, as such, should be borne collectively. A Communitarian approach would therefore judge a compensation system on its capacity to spread risk and provide meaningful and expeditious compensation to victims. (3) The Corrective Justice approach stresses the responsibility of the morally culpable wrongdoer to restore the victim to his pre-accident status. Our accident compensation scheme does not provide a mechanism to address the notion of corrective justice.

Richard Robinson explains that vertical restraints, such as resale price maintenance and exclusive territories, are restrictive trade practices under the Commerce Act 1986, however both can be authorised under section 58 of the Act if the practice benefits the public. Judge Posner has argued that vertical restraints are generally welfare enhancing because output increases, however others have questioned whether output will increase in all circumstances. Some have argued that vertical restraints which aim to encourage service competition among retailers can mean that consumers end up paying a higher price for services they don’t require. The Commerce Commission expects applications for authorisation to quantify the expected efficiency gains. The New Zealand stance, which allows for authorisation where efficiencies are proven, is suited to this unclear and highly contentious area in both Law and Economics.

The New Zealand Telecommunications Commissioner must make a recommendation to the Government by December 2003 whether or not Telecom should be required to unbundle its local loop. While it is generally accepted that consumers benefit from competition, the choice of the regulatory mechanism to promote competition is important to the Law and Economics approach, where efficiency and welfare maximisation are paramount considerations. David Carter argues that unbundling the local loop will be damaging to consumer welfare. Local loop unbundling distorts the incentives on the incumbent firm to invest and innovate, as any investment will essentially benefit the entrant. Unbundling also distorts the incentives for new entrants to invest, as they are presented with attractive low-priced access to the local loop. Both distortions affect dynamic efficiency for the long-term benefit of consumers.

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