Optimal sliding scale regulation: an application to regional electricity distribution in England and Wales
AbstractThis paper examines optimal price (i.e. 'sliding scale') regulation of a monopoly when productivity and managerial effort are not observed. We show generally how to operationalize this model of incentive regulation and use actual data from electricity distribution in England and Wales to estimate key parameters and make welfare comparisons of sliding scale regulation with a stylized price cap regime and the First-Best (the full information case). Our method enables us to quantify technical uncertainty as faced by the electricity regulator in the 1990s and shows that there are significant welfare gains from a sliding scale relative to the stylized price cap regime. Copyright 2007 , Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 59 (2007)
Issue (Month): 3 (July)
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Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
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Other versions of this item:
- David Hawdon & Lester C. Hunt & Paul Levine & Neil Rickman, 2005. "Optimal sliding scale regulation: An application to regional electricity distribution in England and Wales," Surrey Energy Economics Centre (SEEC), School of Economics Discussion Papers (SEEDS), Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey 111, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
- Hawdon, David & Hunt, Lester & Levine, Paul L & Rickman, Neil, 2005. "Optimal Sliding Scale Regulation: An Application to Regional Electricity Distribution in England and Wales," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4934, C.E.P.R. Discussion Papers.
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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