The ratchet effect in a two lag setting and the mitigating influence of yardstick competition
In order to increase efficiency in the provision of power distribution networks, the German regulator Bundesnetzagentur plans to implement revenue cap regulation together with yardstick competition. Revenue cap regulation could bear the ratchet effect: cost minimization need not to be optimal for the operator who anticipates that his revenue cap will become adjusted according to his cost performance. The regulator could extract all the rent by lowering an operator’s revenue cap to the level of costs he revealed to be possible for him to reach. The ratchet effect could be mitigated by yardstick competition at which the level of revenues that is allowed to one operator is tied to the performance of others that are comparable to him. One will only be allowed to accumulate revenues that recover the least cost level that has been adopted within the group of comparable decision makers. In a setting of two sequential regulatory lags, this paper examines the occurence of the ratchet effect and the mitigating influence that yardstick competition has on it.
When requesting a correction, please mention this item's handle: RePEc:bav:wpaper:025_brockmann. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dominique Lemmermann)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.