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Regulatory structure and risk and infrastructure firms : an international comparison


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  • Alexander, Ian
  • Mayer, Colin
  • Weeds, Helen


Evidence about how choice of regulatory regimes affects the level of shareholder risk for the regulated company has traditionally focused on studies in the United Kingdom and the United States. Broad comparisons of price-cap based regimes (as practiced in the UK) with rate-of-return regulation (as practiced in the US) show price-cap based regimes to be associated with higher levels of shareholder risk (as measured by the beta value) than rate-of-return regulation is. But so few countries were compared that it was suspected that other factors could be at work. The authors broaden the investigation by studying more countries (including regulated utilities in Canada, Europe,, and Latin America), doing a sectoral comparison to control for some risks related to factors other than the regulatory regime, and use narrower classifications for the regulatory regime. They also look at such recent evidence as the move from relatively pure price caps in the UK electricity sector to a mixed-revenue/price-cap based system. The authors find results aligned with earlier research, namely that investors bear the greatest nondiversifiable risk with price caps and the least nondiversifiable risk with rate-of-return regulation.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1698.

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Date of creation: 31 Dec 1996
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Handle: RePEc:wbk:wbrwps:1698

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Keywords: Environmental Economics&Policies; Economic Theory&Research; Banks&Banking Reform; Payment Systems&Infrastructure; International Terrorism&Counterterrorism; Environmental Economics&Policies; Economic Theory&Research; Banks&Banking Reform; Insurance&Risk Mitigation; Financial Intermediation;


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Cited by:
  1. Alexander, Ian & Estache, Antonio & Oliveri, Adele, 2000. "A few things transport regulators should know about risk and the cost of capital," Utilities Policy, Elsevier, Elsevier, vol. 9(1), pages 1-13, March.
  2. Goldstein, Andrea & Pires, Jose Claudio Linhares, 2002. "Brazilian Regulatory Agencies: Early Appraisal and Looming Challenges," Centre on Regulation and Competition (CRC) Working papers, University of Manchester, Institute for Development Policy and Management (IDPM) 30615, University of Manchester, Institute for Development Policy and Management (IDPM).
  3. Chisari, Omar & Ferro, Gustavo, 2011. "Tópicos de Economía de la Regulación de los Servicios Públicos," UADE Textos de Discusión, Instituto de Economía, Universidad Argentina de la Empresa 65_2011, Instituto de Economía, Universidad Argentina de la Empresa.
  4. Knight-John, Malathy & Jayasinghe, Shantha & Perumal, Andrew, 2004. "Regulatory Impact Assessment in Sri Lanka: The Bridges That Have To Be Crossed," Centre on Regulation and Competition (CRC) Working papers, University of Manchester, Institute for Development Policy and Management (IDPM) 30666, University of Manchester, Institute for Development Policy and Management (IDPM).
  5. Kirkpatrick, Colin & Parker, David & Zhang, Yin-Fang, 2004. "Price and Profit Regulation in Developing and Transition Economies, Methods Used and Problems Faced: A Survey of the Regulators," Centre on Regulation and Competition (CRC) Working papers, University of Manchester, Institute for Development Policy and Management (IDPM) 30596, University of Manchester, Institute for Development Policy and Management (IDPM).
  6. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, August.
  7. Grout, Paul A. & Zalewska, Anna, 2006. "The impact of regulation on market risk," Journal of Financial Economics, Elsevier, Elsevier, vol. 80(1), pages 149-184, April.
  8. Bahman Kashi, 2014. "Risk Management and the Stated Capital Costs by Independent Power Producers," Development Discussion Papers, JDI Executive Programs 2014-03, JDI Executive Programs.
  9. Gaggero, Alberto A., 2007. "Regulatory risk in the utilities industry: An empirical study of the English-speaking countries," Utilities Policy, Elsevier, Elsevier, vol. 15(3), pages 191-205, September.
  10. Sirtaine, Sophie & Pinglo, Maria Elena & Guasch, J. Luis & Foster, Vivien, 2005. "How profitable are private infrastructure concessions in Latin America?: Empirical evidence and regulatory implications," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 45(2-3), pages 380-402, May.
  11. Paul Levine & Paul Levine & Jon Stern & Francesc Trillas, 2003. "Independent Utility Regulators: Lessons from Monetary Policy," School of Economics Discussion Papers, School of Economics, University of Surrey 0403, School of Economics, University of Surrey.
  12. Chalmeau, Olivier, 2013. "Determinants of European telecommunication operators systematic risk," 24th European Regional ITS Conference, Florence 2013, International Telecommunications Society (ITS) 88495, International Telecommunications Society (ITS).
  13. Clive Stones, 2007. "Risk Sharing, the Cost of Equity and the Optimal Capital Structure of the Regulated Firm," Review of Industrial Organization, Springer, Springer, vol. 30(2), pages 139-159, March.


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