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Incentives for Conservation and Quality-Improvement by Public Utilities

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  • Lewis, Tracy R
  • Sappington, David E M

Abstract

The authors examine the design of incentive programs to motivate regulated utilities to supply both basic service (e.g., electricity supply, local telephone service) and service enhancements (e.g., energy-conservation services, improved clarity and speed of voice communication). The optimal regulatory programs are shown to vary greatly, depending upon the information available to the regulator. The price of the basic service may optimally be distorted above or below marginal cost to better motivate the supply of the service enhancement. The authors' policy prescriptions are compared with current programs and proposals to promote energy conservation. Copyright 1992 by American Economic Association.

Suggested Citation

  • Lewis, Tracy R & Sappington, David E M, 1992. "Incentives for Conservation and Quality-Improvement by Public Utilities," American Economic Review, American Economic Association, vol. 82(5), pages 1321-1340, December.
    • Handle: RePEc:aea:aecrev:v:82:y:1992:i:5:p:1321-40
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    Citations

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    Cited by:

    1. Laura Abrardi & Carlo Cambini, 2014. "Tariff Regulation with Energy Efficiency Goals," IEFE Working Papers 65, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    2. Abrardi, Laura & Cambini, Carlo, 2015. "Tariff regulation with energy efficiency goals," Energy Economics, Elsevier, vol. 49(C), pages 122-131.
    3. Cesi Berardino & Iozzi Alberto & Valentini Edilio, 2012. "Regulating Unverifiable Quality by Fixed-Price Contracts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-39, September.
    4. Datta, Souvik, 2019. "Decoupling and demand-side management: Evidence from the US electric industry," Energy Policy, Elsevier, vol. 132(C), pages 175-184.
    5. Stéphane Auray & Thomas Mariotti & Fabien Moizeau, 2006. "Dynamic Regulation of Public Good Quality," Cahiers de recherche 0610, CIRPEE.
    6. Wirl, Franz, 2015. "White certificates — Energy efficiency programs under private information of consumers," Energy Economics, Elsevier, vol. 49(C), pages 507-515.
    7. Wirl, Franz, 1995. "Strategic consumers' reactions to conservation incentives," Utilities Policy, Elsevier, vol. 5(2), pages 109-113, April.
    8. Giraudet, Louis-Gaëtan, 2020. "Energy efficiency as a credence good: A review of informational barriers to energy savings in the building sector," Energy Economics, Elsevier, vol. 87(C).
    9. Leon Chu & David Sappington, 2012. "Designing optimal gain sharing plans to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 42(2), pages 115-134, October.
    10. Stéphane Auray & Thomas Mariotti & Fabien Moizeau, 2011. "Dynamic regulation of quality," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 246-265, June.
    11. Kooreman, Peter, 1996. "Individual discounting, energy conservation, and household demand for lighting," Resource and Energy Economics, Elsevier, vol. 18(1), pages 103-114, March.
    12. Bierens, Herman J. & Swanson, Norman R., 2000. "The econometric consequences of the ceteris paribus condition in economic theory," Journal of Econometrics, Elsevier, vol. 95(2), pages 223-253, April.
    13. Caplan, Arthur J., 2003. "Reputation and the control of pollution," Ecological Economics, Elsevier, vol. 47(2-3), pages 197-212, December.
    14. Leon Chu & David Sappington, 2013. "Motivating energy suppliers to promote energy conservation," Journal of Regulatory Economics, Springer, vol. 43(3), pages 229-247, June.
    15. Sand, Jan Y., 2012. "Infrastructure quality regulation," Transport Policy, Elsevier, vol. 24(C), pages 310-319.
    16. Franz Wirl & Wolfgang Orasch, 1998. "Analysis of United States' Utility Conservation Programs," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(4), pages 467-486, August.
    17. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    18. Claus Huber & Franz Wirl, 1996. "Optimal incentives to reduce transboundary emissions: Theory and empirical illustration to sulphur emissions in Austria and (former) Czechoslovakia," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(2), pages 149-172, June.

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