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Optimal Price Cap Regulation

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Author Info

  • Gerhard CLEMENZ

Abstract

The author considers the problem of a regulator who cannot observe the R&D expenditures of a firm devoted to reductions in the costs of production. It is shown, for a finite horizon model, that price-cap regulation does not only provide stronger incentives for cost reductions than does rate of return regulation, but that it is also capable of achieving a higher social welfare level, even if the costs of reviewing the current production costs are negligible. These conclusions are reinforced in an infinite horizon model. Copyright 1991 by Blackwell Publishing Ltd.

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Bibliographic Info

Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number vie8904.

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Date of creation: Nov 1999
Date of revision:
Publication status: published in Journal of Industrial Economics 39 (1991).
Handle: RePEc:vie:viennp:vie8904

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Web page: http://www.univie.ac.at/vwl

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Cited by:
  1. Giannakis, Dimitrios & Jamasb, Tooraj & Pollitt, Michael, 2005. "Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution networks," Energy Policy, Elsevier, vol. 33(17), pages 2256-2271, November.
  2. Giannakis, D. & T. Jamasb & Pollitt, M.G., 2004. "Benchmarking and incentive regulation of quality of service: an application to the UK electricity distribution utilities," Cambridge Working Papers in Economics 0408, Faculty of Economics, University of Cambridge.
  3. Tooraj Jamasb & Rabindra Nepal, 2014. "Issues and Options in the Economic Regulation of European Network Security," Discussion Papers Series 505, School of Economics, University of Queensland, Australia.
  4. James Reitzes, 2008. "Downstream price-cap regulation and upstream market power," Journal of Regulatory Economics, Springer, vol. 33(2), pages 179-200, April.
  5. Dierk Bauknecht, 2011. "Incentive Regulation and Network Innovations," RSCAS Working Papers 2011/02, European University Institute.
  6. Jose Luis Lima R & Andres Gomez Lobo, 2004. "Good Regulatory Lags for Price Cap and Rolling Cap contracts," Econometric Society 2004 Latin American Meetings 278, Econometric Society.
  7. Joan Calzada & Francesc Trillas, 2005. "The interconnection prices in telecomunications: from theory to practice," Hacienda Pública Española, IEF, vol. 173(2), pages 85-125, June.

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