The Political Economy of Pipelines: A Century of Comparative Institutional Development

01 January 2012
Dr. Jeff D. Makholm

With global demand for energy poised to increase by more than half in the next three decades, the supply of safe, reliable, and reasonably priced gas and oil will continue to be of fundamental importance to modern economies. Central to this supply are the pipelines that transport this energy. And while the fundamental economics of the major pipeline networks are the same, the differences in their ownership, commercial development, and operation can provide insight into the workings of market institutions in various nations.

Drawing on a century of the world's experience with gas and oil pipelines, this book from the University of Chicago Press illustrates the importance of economics in explaining the evolution of pipeline politics in various countries. Author Dr. Jeff D. Makholm, NERA Senior Vice President, demonstrates that institutional differences influence ownership and regulation, while rents and consumer pricing depend on the size and diversity of existing markets, the depth of regulatory institutions, and the historical structure of the pipeline businesses themselves. The history of pipelines is also rife with social conflict, and Dr. Makholm explains how and when institutions in a variety of countries have controlled pipeline behavior -- either through economic regulation or government ownership -- in the public interest.

The Political Economy of Pipelines: A Century of Comparative Institutional Development is available for purchase on the University of Chicago Press website.


"Elegantly and concisely written, [The Political Economy of Pipelines] is in part an essay on economic theory, in part a contribution to comparative economic and business history, and in part a programmatic statement for industry reform. Business and economic historians will find it highly useful, especially in relation to the sections on economic theory and pipelines, which are lucid and insightful." -- Professor Ray Stokes, Director of the Centre for Business History in Scotland at the University of Glasgow, Business History Review

"More than a story of pipeline markets and regulation, this book also offers a rich study of how asset specificity, non-deployable capital, and high up-front capital costs affect market development, regulation, pricing, and entry. Makholm takes what would otherwise be a pretty unexceptional industry-pipeline transport-and makes it of interest to a broader audience, especially those concerned with the new institutional economics."
-- Gary D. Libecap, University of California, Santa Barbara

"This book comes at the right moment. It blends insights into the technology, economics, and institutional development of an industry that has long been ignored in the US and elsewhere. With the ongoing transformation of the energy sector, The Political Economy of Pipelines is a must-read for anyone interested in the natural gas and other pipeline industries as well as those interested in the evolution of economic and institutional thought." -- Christian von Hirschhausen, Berlin University of Technology

"Both invaluable and disheartening, The Political Economy of Pipelines helps readers to understand why the European gas market does not work-not because reforms have not gone far enough, but because they are fundamentally flawed. In place of the current patchwork of nationally regulated pipeline monopolies, Europe must put in place institutions allowing the emergence and evolution of a competitive market for gas transportation capacity rights that ignores national borders. As Jeff D. Makholm’s institutional economic analysis confirms, such a shift is almost as unlikely as it is needed." -- Pierre Noël, University of Cambridge

"Overall, the book is important in understanding the development of regulation and the contribution of New Institutional Economics. In fact, Makholm offers a convincing discussion of how regulatory frameworks have developed and possible implications for future regulatory designs." -- Hendrik Finger, Journal of Regulatory Economics