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Optimal Sliding Scale Regulation: An Application to Regional Electricity Distribution in England and Wales

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  • Levine, Paul
  • Hunt, Lester
  • Rickman, Neil
  • Hawdon, David

Abstract

This paper examines optimal price (i.e. ?sliding scale?) regulation of a monopoly when efficiency and managerial effort are not observed. We show how to operationalize this model of incentive regulation and use actual data from electricity distribution in England and Wales to make welfare comparisons of sliding scale regulation with a 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 price cap regime.

Suggested Citation

  • Levine, Paul & Hunt, Lester & Rickman, Neil & Hawdon, David, 2005. "Optimal Sliding Scale Regulation: An Application to Regional Electricity Distribution in England and Wales," CEPR Discussion Papers 4934, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:4934
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    Cited by:

    1. Miraldo, Marisa & Siciliani, Luigi & Street, Andrew, 2011. "Price adjustment in the hospital sector," Journal of Health Economics, Elsevier, vol. 30(1), pages 112-125, January.
    2. Ovaere, Marten, 2023. "Cost-efficiency and quality regulation of energy network utilities," Energy Economics, Elsevier, vol. 120(C).
    3. Stroffolini, Francesca, 2012. "Access profit-sharing regulation with information acquisition and transmission," Research in Economics, Elsevier, vol. 66(2), pages 161-174.
    4. 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.
    5. J.A. den Hertog, 2010. "Review of economic theories of regulation," Working Papers 10-18, Utrecht School of Economics.

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    More about this item

    Keywords

    Sliding scale; Regulation; Electricity distribution;
    All these keywords.

    JEL classification:

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

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