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Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks

In: Economic Regulation and Its Reform: What Have We Learned?

  • Paul L. Joskow

Over the last twenty years several network industries that evolved historically as either private or state-owned regulated vertically integrated monopolies have been privatized, restructured, and some vertical segments deregulated. These industries include telecommunications, natural gas, electric power, and railroads. The reform program typically involves the vertical separation (ownership or functional) of potentially competitive segments, which are gradually deregulated, from remaining vertical segments that are assumed to have natural monopoly characteristics and continue to be subject to price, network access, service quality and entry regulations. In several countries, an important part of the reform agenda has included the introduction of “incentive regulation” mechanisms for the remaining regulated segments as an alternative to traditional “cost of service” or “rate of return” regulation. The expectation was that incentive regulation mechanisms would provide more powerful incentives for regulated firms to reduce costs, improve service quality in a cost effective way, stimulate (or at least not impede) the introduction of new products and services, and stimulate efficient investment in and pricing of access to regulated infrastructure services.

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This chapter was published in:
  • Nancy L. Rose, 2014. "Economic Regulation and Its Reform: What Have We Learned?," NBER Books, National Bureau of Economic Research, Inc, number rose05-1, September.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12566.
    Handle: RePEc:nbr:nberch:12566
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