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Incentive Regulation, Investments and Technological Change

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  • Ingo Vogelsang

Abstract

Based on an idiosyncratic reading of the literature I propose intermediate (rather than tight or soft) regulation for balancing investment incentives with allocative efficiency and competition objectives. Intermediate regulation is compatible with incentive regulation and helps lengthening the regulatory commitment period necessary for incentives. However, such commitment for the whole time horizon of infrastructure or innovation investments is impossible. The compatibility of incentive regulation and efficient investment is thus in doubt. Incentive regulation for regular infrastructure investments therefore needs periodic updating based on rate-of-return regulation criteria. Innovative infrastructure investments may warrant regulatory holidays, which should be conditioned on strict criteria.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2964.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_2964

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Cited by:
  1. David Sappington & Dennis Weisman, 2010. "Price cap regulation: what have we learned from 25 years of experience in the telecommunications industry?," Journal of Regulatory Economics, Springer, Springer, vol. 38(3), pages 227-257, December.
  2. Ingo Vogelsang, 2010. "The Tension Between Incentive Regulation and Investments in Network Industries," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 8(3), pages 13-18, October.
  3. Magnus Söderberg, 2010. "Informal Benchmarks as a Source of Regulatory Threat in Unregulated Utility Sectors," CESifo Working Paper Series 2973, CESifo Group Munich.

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