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Regulation and Contracts for Utility Services: Substitutes or Complements? Lessons from UK Railway and Electricity History

  • Jon Stern

It is frequently suggested that regulation by contract can effectively substitute for regulation by a specialist regulatory agency for utility service industries. We examine these arguments and consider legal aspects and the historical experience of the UK as regards railways and electricity. We conjecture that regulation and contracts are complements for network industries rather than substitutes so that a regulatory agency allows for better and simpler contracts, which are easier to monitor, enforce and revise. This is what would be expected from the theory of incomplete contracts. We demonstrate that UK historical experience is strongly consistent with this view.

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Article provided by Taylor & Francis Journals in its journal Journal of Economic Policy Reform.

Volume (Year): 6 (2003)
Issue (Month): 4 ()
Pages: 193-215

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Handle: RePEc:taf:jpolrf:v:6:y:2003:i:4:p:193-215
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  1. Oliver Hart, 2003. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages C69-C76, March.
  2. repec:rne:rneart:v:1:y:2002:i:1:p:1-38 is not listed on IDEAS
  3. Littlechild, S.C., 2001. "Competitive Bidding for a Long-term Electricity Distribution Contract," Cambridge Working Papers in Economics 0112, Faculty of Economics, University of Cambridge.
  4. J. Luis Guasch & Jean-Jacques Laffont & Stephane Straub, 2004. "Renegotiation of Concession Contracts in Latin America," ESE Discussion Papers 103, Edinburgh School of Economics, University of Edinburgh.
  5. Stern, J., 2000. "Electricity and telecommunications regulatory institutions in small and developing countries," Utilities Policy, Elsevier, vol. 9(3), pages 131-157, September.
  6. Levy, Brian & Spiller, Pablo T, 1994. "The Institutional Foundations of Regulatory Commitment: A Comparative Analysis of Telecommunications Regulation," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 201-46, October.
  7. Preetum Domah & Pollitt, M.G. & Jon Stern, 2002. "Modelling the Costs of Electricity Regulation: Evidence of Human Resource Constraints in Developing Countries," Cambridge Working Papers in Economics 0229, Faculty of Economics, University of Cambridge.
  8. Stern, Jon & Holder, Stuart, 1999. "Regulatory governance: criteria for assessing the performance of regulatory systems: An application to infrastructure industries in the developing countries of Asia," Utilities Policy, Elsevier, vol. 8(1), pages 33-50, March.
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