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Incentive Regulation: Expectations, Surprises, and the Road Forward

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  • Martin Cave

    (London School of Economics and Political Science)

Abstract

Forty years have passed since an inflation-adjusted price cap, widely called RPI-X, was proposed as a way of controlling prices in the UK’s newly privatised monopoly telecommunications company by a form of incentive regulation. The paper traces developments since then in several jurisdictions, within the context of a wider field of changing regulatory governance involving legislatures and governments as well as regulatory agencies. The focus is on, first, the experience of increasing complexity of the incentive schemes adopted, and second on the growing political salience of regulatory decisions which adds goals such as net zero, with more direct quantitative targets, to maximising consumer welfare. The implications of these changes for regulatory interventions are considered.

Suggested Citation

  • Martin Cave, 2024. "Incentive Regulation: Expectations, Surprises, and the Road Forward," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(2), pages 431-453, September.
    • Handle: RePEc:kap:revind:v:65:y:2024:i:2:d:10.1007_s11151-024-09976-8
    DOI: 10.1007/s11151-024-09976-8
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    References listed on IDEAS

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    1. Cave, Martin, 2023. "The achievement of digitalisation in the EU and its reliance on gigabit connectivity," Telecommunications Policy, Elsevier, vol. 47(9).
    2. 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.
    3. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 18946, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    4. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    5. Richard A. Posner, 1971. "Taxation by Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 22-50, Spring.
    6. David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
    7. David Sappington & Dennis Weisman, 2010. "Price cap regulation: what have we learned from 25 years of experience in the telecommunications industry?," Journal of Regulatory Economics, Springer, vol. 38(3), pages 227-257, December.
    8. repec:vuw:vuwscr:18946 is not listed on IDEAS
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    Cited by:

    1. David E. M. Sappington & Dennis L. Weisman, 2024. "40 Years of Incentive Regulation: What Have We Learned, and What Questions Remain?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(2), pages 361-373, September.
    2. Sappington, David E.M., 2024. "Optimal revenue adjustment in the presence of exogenous demand variation," Energy Economics, Elsevier, vol. 131(C).
    3. Daniel Duma & Michael G. Pollitt & Andrei Covatariu, 2024. "Regulatory Learning in the Face of Net Zero Climate Policy: The Case of the UK," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(2), pages 505-530, September.
    4. Stephen Littlechild, 2024. "Incentive Regulation From the Inside: Resetting 12 RPI-X Price Caps in 1993–1995," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(2), pages 375-430, September.
    5. Paul L. Joskow, 2024. "The Expansion of Incentive (Performance-Based) Regulation of Electricity Distribution and Transmission in the United States," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(2), pages 455-503, September.

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