IDEAS home Printed from https://ideas.repec.org/p/aug/augsbe/0292.html
   My bibliography  Save this paper

The ratchet effect in a two lag setting and the mitigating influence of yardstick competition

Author

Abstract

In order to increase efficiency in the provision of power distribution networks, the German regulator Bundesnetzagentur plans to implement revenue cap regulation together with yardstick competition. Revenue cap regulation could bear the ratchet effect: cost minimization need not to be optimal for the operator who anticipates that his revenue cap will become adjusted according to his cost performance. The regulator could extract all the rent by lowering an operator's revenue cap to the level of costs he revealed to be possible for him to reach. The ratchet effect could be mitigated by yardstick competition at which the level of revenues that is allowed to one operator is tied to the performance of others that are comparable to him. One will only be allowed to accumulate revenues that recover the least cost level that has been adopted within the group of comparable decision makers. In a setting of two sequential regulatory lags, this paper examines the occurence of the ratchet effect and the mitigating influence that yardstick competition has on it.

Suggested Citation

  • Cord Brockmann, 2007. "The ratchet effect in a two lag setting and the mitigating influence of yardstick competition," Discussion Paper Series 292, Universitaet Augsburg, Institute for Economics.
    • Handle: RePEc:aug:augsbe:0292
    as

    Download full text from publisher

    File URL: https://vwl.wiwi.uni-augsburg.de/vwl/institut/paper/292.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ratchet effect; yardstick competition; regulation;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aug:augsbe:0292. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Simone Raab-Kratzmeier (email available below). General contact details of provider: https://edirc.repec.org/data/ivaugde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.