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Public-Utility Regulators Are Only Human: A Positive Theory of Rational Constraints

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  • Evans, Lewis
  • Garber, Steven

Abstract

Positive models of public-utility regulation should capture personal incentives of regulators. A regulatory objective function is specified by appea l to standard human concerns coupled with politics and processes pecu liar to public-utility regulation. Constraints a rational regulator w ould impose on the firm are thereby derived, and connections between regulatory objectives and regulatory rules illuminated. Results inclu de theoretical rationales for "rate-of-return" regulation in a worl d of certainty, and a largely neglected type of "rate-of-return" re gulation under (symmetric) uncertainty. Other forms of regulation sho uld also be explicable in terms of personal motives of human regulato rs. Copyright 1988 by American Economic Association.

Suggested Citation

  • Evans, Lewis & Garber, Steven, 1988. "Public-Utility Regulators Are Only Human: A Positive Theory of Rational Constraints," American Economic Review, American Economic Association, vol. 78(3), pages 444-462, June.
  • Handle: RePEc:aea:aecrev:v:78:y:1988:i:3:p:444-62
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    Cited by:

    1. Heyes, Anthony & Kapur, Sandeep, 2009. "Enforcement missions: Targets vs budgets," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 129-140, September.
    2. Larry Blank & John Mayo, 2009. "Endogenous Regulatory Constraints and the Emergence of Hybrid Regulation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(3), pages 233-255, November.
    3. Ingo Vogelsang, 2012. "Incentive Regulation, Investments and Technological Change," Chapters,in: Regulation and the Performance of Communication and Information Networks, chapter 4 Edward Elgar Publishing.
    4. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
    5. Kalu, Timothy Ch. U., 1995. "A uniform profit margin policy and its effects on mineral producing firms The case of the oil industry," Resources Policy, Elsevier, vol. 21(1), pages 61-72, March.
    6. Ingo Vogelsang, 2006. "Electricity Transmission Pricing and Performance-based Regulation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 97-126.
    7. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 3851, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.

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