Setting the X Factor in Price-Cap Regulation Plans
AbstractDespite the popularity of price-cap regulation in practice, the economic literature provides limited guidance on how to determine the X factor, which is the rate at which inflation-adjusted output prices must fall under price-cap plans. We review the relevant basic principles, and then determine how to set the X factor: (1) when only a subset of the firm's products are subject to price-cap regulation, and when product-specific costs and productivity cannot be measured; (2) when changes in regulated prices affect the economy-wide inflation rate; and (3) in the presence of such structural changes as strengthened competitive forces. Copyright 1999 by Kluwer Academic Publishers
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Bibliographic InfoArticle provided by Springer in its journal Journal of Regulatory Economics.
Volume (Year): 16 (1999)
Issue (Month): 1 (July)
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Web page: http://www.springerlink.com/link.asp?id=100298
Other versions of this item:
- Jeffrey I. Bernstein & David E. M. Sappington, 1998. "Setting the X Factor in Price Cap Regulation Plans," NBER Working Papers 6622, National Bureau of Economic Research, Inc.
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
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