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 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.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4934.
Date of creation: Feb 2005
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Other versions of this item:
- David Hawdon & Lester C. Hunt & Paul Levine & Neil Rickman, 2007. "Optimal sliding scale regulation: an application to regional electricity distribution in England and Wales," Oxford Economic Papers, Oxford University Press, vol. 59(3), pages 458-485, July.
- 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) 111, Surrey Energy Economics Centre (SEEC), School of Economics, University of Surrey.
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-14 (All new papers)
- NEP-COM-2005-06-14 (Industrial Competition)
- NEP-ENE-2005-06-14 (Energy Economics)
- NEP-GEO-2005-06-14 (Economic Geography)
- NEP-REG-2005-06-14 (Regulation)
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