A Cost Function for the Natural Gas Transmission Industry: Further Considerations

Abstract

This article studies the cost function for the natural gas transmission industry. In addition to a tribute to H.B. Chenery, it firstly offers some further comments on a recent contribution (Yépez 2008 Yépez, R. A. 2008. A cost function for the natural gas industry. The Engineering Economist, 53(1): 68–83. [Taylor & Francis Online] , [Google Scholar]): a statistical characterization of long-run scale economies and a simple reformulation of the long-run problem. An extension is then proposed to analyze how the presence of seasonally varying flows modifies the optimal design of a transmission infrastructure. Lastly, the case of a firm that anticipates a possible random rise in its future output is also studied to discuss the optimal degree of excess capacity to be built into a new transmission infrastructure.

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