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A Model of Sliding-Scale Regulation

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Author Info
Lyon, Thomas P

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Abstract

Price caps, while widely touted, are less commonly implemented. Most incentive schemes involve profit sharing and are thus variants of sliding-scale regulation. I show that, relative to price caps, some degree of profit sharing always increases expected welfare. Numerical simulations show that welfare may be enhanced by large amounts of profit sharing and by granting the firm a greater share of gains than of losses. Simulations also suggest profit sharing is most beneficial when the firm's initial cost is high and cost-reducing innovations are difficult to achieve but offer the potential for substantial savings. Copyright 1996 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 9 (1996)
Issue (Month): 3 (May)
Pages: 227-47
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Handle: RePEc:kap:regeco:v:9:y:1996:i:3:p:227-47

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  1. Panteghini, Paolo M. & Scarpa, Carlo, 2003. "Irreversible Investments and Regulatory Risk," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  2. Michele Moretto & Paolo M. Panteghini & Carlo Scarpa, 2007. "Profit Sharing and Investment by Regulated Utilities: a Welfare Analysis," "Marco Fanno" Working Papers 0059, Dipartimento di Scienze Economiche "Marco Fanno". [Downloadable!]
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  3. Paolo Panteghini & Carlo Scarpa, 2008. "Political pressures and the credibility of regulation: can profit sharing mitigate regulatory risk?," International Review of Economics, Springer, vol. 55(3), pages 253-274, September. [Downloadable!] (restricted)
  4. João Lizardo de Araújo, 2001. "A questão do investimento no Setor Elétrico Brasileiro: reforma e crise [The investment in the Brazilian power sector: reform and crisis]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 11(1), pages 77-96, July. [Downloadable!]
  5. Michele Moretto & Paola Valbonesi, 2004. "Opting-out in profit-sharing regulation," Industrial Organization 0403002, EconWPA. [Downloadable!]
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  6. Michele Moretto & Paola Valbonesi, 2007. "Firm Regulation and Profit Sharing: A Real Option Approach," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 7(1). [Downloadable!]
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  7. James Reitzes, 2008. "Downstream price-cap regulation and upstream market power," Journal of Regulatory Economics, Springer, vol. 33(2), pages 179-200, April. [Downloadable!] (restricted)
  8. Kirkpatrick, Colin & Parker, David & Zhang, Yin-Fang, 2004. "Price and Profit Regulation in Developing and Transition Economies, Methods Used and Problems Faced: A Survey of the Regulators," Centre on Regulation and Competition (CRC) Working papers 30596, University of Manchester, Institute for Development Policy and Management (IDPM). [Downloadable!]
  9. Michele Moretto & Paolo Panteghini & Carlo Scarpa, 2003. "Investment Size and Firm's Value under Profit Sharing Regulation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  10. Francesca Stroffolini, 2009. "Access Profit-Sharing Regulation with Information Transmission and Acquisition," CSEF Working Papers 214, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  11. Vladimir Hlasny, 2008. "The impact of restructuring and deregulation on gas rates," Journal of Regulatory Economics, Springer, vol. 34(1), pages 27-52, August. [Downloadable!] (restricted)
  12. Paolo Panteghini & Carlo Scarpa, 2003. "The Distributional Efficiency of Alternative Regulatory Regimes: A Real Option Approach," Asia-Pacific Financial Markets, Springer, vol. 10(4), pages 403-418, August. [Downloadable!] (restricted)
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  13. Michele Moretto & Paola Valbonese, 2006. "Firm Regulation and Profit-Sharing: A Real Option Approach," Working Papers 2006.7, Fondazione Eni Enrico Mattei. [Downloadable!]
  14. Michele Moretto & Paola Valbonesi, . "Dynamic Firm Regulation with Endogenous Profit-Sharing," Working Papers ubs0410, University of Brescia, Department of Economics. [Downloadable!]
  15. Carlo Scarpa & Paolo Panteghini, 2001. "Incentives to (Irreversible) Investments Under Different Regulatory Regimes," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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