State aids

The recent process of modernization of State aid control has resulted in a greater role for economic analysis.

In accordance with this evolution, we have been involved in many cases, in sectors ranging from banking to steel, agriculture, electricity, and telecommunications. Our work in past State aid cases dealt with the following topics.

  • Applying the Market Economy Investor Principle. In some proceedings, the main debate is about the very existence of an aid. In such cases, we study whether the disputed government action would have been undertaken by a private investor. This requires the definition and the analysis of a business plan under alternative variants regarding key parameters such as the revenues generated  by the project and the cost of capital.

  • Identifying the market failures that might justify an aid. When the existence of an aid is not challenged, the debate often revolves around its justification as a way to remedy a market failure. We contribute to the identification of such market failures, which may result for instance from externalities across companies, missing insurance markets, credit market imperfections, or effects on the environment.

  • Assessing the incentive effect of the aid and its proportionality. Once the existence of a market failure in need of a remedy is acknowledged, the main question becomes whether the aid under scrutiny constitutes a proper remedy. In general, this amounts to finding out whether the aid is likely to alter the recipient’s incentives and induce it to undertake some project. Answering this question requires one to specify a business plan for the project and a counterfactual business plan (corresponding to the flow of costs and revenues in the absence of the project). These business plans can also be used for the assessment of the proportionality of the aid – namely, to check whether the amount of the aid exceeds the minimal level required for the incentive effect to be present.

  • Assessing the risk of competition distortions. Different State aid cases may give rise to different types of competition concerns, ranging from fears of exclusionary consequences to concerns regarding the distortion of companies’ technological choices. We contribute to the identification and assessment of these risks.