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Profit-sharing regulation: an economic appraisal

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  • Colin Mayer
  • John Vickers

Abstract

The stock market, take-over bidders, executive pay setters, perhaps Stephen Littlechild himself, even last summer’s weather, all seem to have been undermining RPI-X price-cap regulation. Until recently, price-cap regulation was regarded as demonstrably superior to US-style rate-of-return regulation, and regulatory reform in several countries has embraced price-cap regulation.2 But in Britain, where price- cap regulation originated, the case now appears to be less compelling: price-cap regulation is perceived by some as conferring unwarranted profits on the utilities and imposing unsustainable demands on regulators. As a consequence, many people believe that we are slipping inexorably into some form of profit regulation.

Suggested Citation

  • Colin Mayer & John Vickers, 1996. "Profit-sharing regulation: an economic appraisal," Fiscal Studies, Institute for Fiscal Studies, vol. 17(1), pages 1-18, February.
  • Handle: RePEc:ifs:fistud:v:17:y:1996:i:1:p:1-18
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    File URL: http://www.ifs.org.uk/fs/articles/fsmayer.pdf
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    References listed on IDEAS

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    1. Braeutigam, Ronald R., 1993. "A regulatory bargain for diversified enterprises," International Journal of Industrial Organization, Elsevier, vol. 11(1), pages 1-20, March.
    2. Greenstein, Shane & McMaster, Susan & Spiller, Pablo T, 1995. "The Effect of Incentive Regulation on Infrastructure Modernization: Local Exchange Companies' Deployment of Digital Technology," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 187-236, Summer.
    3. H.S. Shin, 1994. "News Management and the Value of Firms," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 58-71, Spring.
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    Citations

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    Cited by:

    1. 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 30596, University of Manchester, Institute for Development Policy and Management (IDPM).
    2. Cave, M. & Towse, A., 1997. "Regulating Prices Paid by the NHS for Medicines Supplied by the UK-Based Pharmaceutical Industry," Briefings 000427, Office of Health Economics.
    3. Moretto, Michele & Panteghini, Paolo M. & Scarpa, Carlo, 2008. "Profit sharing and investment by regulated utilities: A welfare analysis," Review of Financial Economics, Elsevier, vol. 17(4), pages 315-337, December.
    4. Michele Moretto & Paolo M. Panteghini & Carlo Scarpa, 2003. "Investment Size and Firm’s Value Under Profit Sharing Regulation," Working Papers 2003.80, Fondazione Eni Enrico Mattei.
    5. Evans, Lewis & Guthrie, Graeme, 2003. "Asset Stranding is Inevitable: Implications for Optimal Regulatory Design," Working Paper Series 3881, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    6. Paolo M. Panteghini & Carlo Scarpa, 2003. "Irreversible Investments and Regulatory Risk," CESifo Working Paper Series 934, CESifo Group Munich.
    7. 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.
    8. Carlo Scarpa & Paolo Panteghini, 2001. "Incentives to (Irreversible) Investments Under Different Regulatory Regimes," CESifo Working Paper Series 417, CESifo Group Munich.
    9. Iossa, Elisabetta & Stroffolini, Francesca, 2002. "Price cap regulation and information acquisition," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 1013-1036, September.
    10. Lucy Chennells, 1997. "The windfall tax," Fiscal Studies, Institute for Fiscal Studies, vol. 18(3), pages 279-291, August.
    11. 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.
    12. Kennedy, David, 2002. "Regulatory reform and market development in power sectors of transition economies: the case of Kazakhstan," Energy Policy, Elsevier, vol. 30(3), pages 219-233, February.
    13. Nicolas Bloom & John Van Reenen, 1998. "Regulating drug prices: where do we go from here?," Fiscal Studies, Institute for Fiscal Studies, vol. 19(3), pages 321-342, August.
    14. Paolo Panteghini & Carlo Scarpa, 2008. "Political pressures and the credibility of regulation: can profit sharing mitigate regulatory risk?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 55(3), pages 253-274, September.
    15. Stroffolini, Francesca, 2012. "Access profit-sharing regulation with information acquisition and transmission," Research in Economics, Elsevier, vol. 66(2), pages 161-174.
    16. Tonci Bakovic & Bernard Tenenbaum & Fiona Woolf, 2003. "Regulation by Contract : A New Way to Privatize Electricity Distribution?," World Bank Publications, The World Bank, number 15078, October.
    17. J.A. den Hertog, 2010. "Review of economic theories of regulation," Working Papers 10-18, Utrecht School of Economics.
    18. Iossa, Elisabetta & Stroffolini, Francesca, 2005. "Price cap regulation, revenue sharing and information acquisition," Information Economics and Policy, Elsevier, vol. 17(2), pages 217-230, March.

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