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Price Cap Regulation: A Case Study of Some Pitfalls of Implementation

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  • Isaac, R Mark

Abstract

There has been considerable discussion of price-cap regulation as an alternative to traditional rate-of-return regulation. This paper examines some of the practical pitfalls of price-cap regulation. First, a model of a terminating price cap is developed. Next, this model is used to propose some problems of implementation. These problems are evaluated in the context of a case study of the Tucson Electric Power Company, which faced a type of price cap for several years in the 1980s. Extensions of the specific case to more general lessons about price-cap regulation are considered. Copyright 1991 by Kluwer Academic Publishers

Suggested Citation

  • Isaac, R Mark, 1991. "Price Cap Regulation: A Case Study of Some Pitfalls of Implementation," Journal of Regulatory Economics, Springer, vol. 3(2), pages 193-210, June.
  • Handle: RePEc:kap:regeco:v:3:y:1991:i:2:p:193-210
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    Cited by:

    1. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
    2. Paul L. Joskow, 2006. "Incentive Regulation for Electricity Networks," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 4(2), pages 3-9, 07.
    3. Paul L. Joskow, 2014. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters,in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344 National Bureau of Economic Research, Inc.
    4. Ingo Vogelsang, 2004. "Network Utilities in the U.S. - Sector Reforms without Privatization," CESifo Working Paper Series 1142, CESifo Group Munich.
    5. Noel Uri, 2003. "The Effect of Incentive Regulation in Telecommunications in the United States," Quality & Quantity: International Journal of Methodology, Springer, vol. 37(2), pages 169-191, May.
    6. Weisman, Dennis L., 2002. "Is there 'Hope' for price cap regulation?," Information Economics and Policy, Elsevier, vol. 14(3), pages 349-370, September.
    7. Pfeifenberger, Johannes P & Tye, William B, 1995. "Handle with care : A primer on incentive regulation," Energy Policy, Elsevier, vol. 23(9), pages 769-779, September.
    8. repec:ces:ifodic:v:4:y:2006:i:2:p:14567496 is not listed on IDEAS
    9. Breton, Michèle & Kharbach, Mohammed, 2012. "Transportation and storage under a dynamic price cap regulation process," Energy Economics, Elsevier, vol. 34(4), pages 918-929.
    10. Uri, Noel D., 2001. "The effect of incentive regulation on productive efficiency in telecommunications," Journal of Policy Modeling, Elsevier, vol. 23(8), pages 825-846, November.

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