Implementing incentive regulation through an alignment with resource bounded regulators
It is puzzling today to explain both the diversity and the rationale of regulators' practice vis-à-vis network monopolies. We argue that two fundamental characteristics should be considered when defining the most appropriate regulatory tools. First, it is the bounded endowment of regulators set by governments and legislators which determines their abilities (staff, budget, administrative powers) to implement any of the regulatory tools. Ranked from the easiest to the most demanding to implement, these various tools are: a- cost plus, b- price/revenue cap, c- output or performance-based regulation, d- menu of contracts and e- yardstick competition. Second, the regulators also have to take into account that the network monopolies perform multiple tasks with heterogeneous regulatory characteristics (in terms of controllability, ex ante predictability and ex post observability). These characteristics of tasks determine what type of regulatory tool is more likely to better regulate each task. The regulatory tools then perform well only when they are implemented for tasks that are controllable and predictable enough. It is the kind of observability of these tasks which determines the best incentive tool to implement. Lastly, conclusions for the regulation of networks are derived. A workable regulation of network relies on a reasonable alignment of the regulatory tools with the regulatory characteristics of tasks and the regulators resource endowment.
|Date of creation:||2013|
|Date of revision:|
|Publication status:||Published, Competition and Regulation in Network Industries, 2013, 14, 3, 265-291|
|Note:||View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00767872|
|Contact details of provider:|| Web page: http://hal.archives-ouvertes.fr/ |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn.
- Jean-Michel Glachant, 2010. "The Achievement of the EU Electricity Internal Market through Market Coupling," RSCAS Working Papers 2010/87, European University Institute.
- 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, June.
- Rious, Vincent & Glachant, Jean-Michel & Perez, Yannick & Dessante, Philippe, 2008.
"The diversity of design of TSOs,"
Elsevier, vol. 36(9), pages 3323-3332, September.
- Rious, V. & Glachant , J. & Perez, Y. & Dessante, P., 2008. "The Diversity of Design of TSOs," Cambridge Working Papers in Economics 0822, Faculty of Economics, University of Cambridge.
- Vincent Rious & Jean-Michel Glachant & Yannick Perez & Philippe Dessante, 2008. "The diversity of design of TSOs," Post-Print hal-00318518, HAL.
- Vincent Rious & Jean-Michel Glachant & Yannick Perez & Philippe Dessante, 2008. "The Diversity of Design of TSOs," Working Papers 0805, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
- Luis Olmos & Sophia Ruester & Siok Jen Liong & Jean-Michel Glachant, 2010. "Public Support for the Financing of RD&D Activities in New Clean Energy Technologies," RSCAS Working Papers 2010/69, European University Institute.
- Jamasb, Tooraj & Pollitt, Michael, 2007.
"Incentive regulation of electricity distribution networks: Lessons of experience from Britain,"
Elsevier, vol. 35(12), pages 6163-6187, December.
- Jamasb, T. & Pollitt, M., 2007. "Incentive Regulation of Electricity Distribution Networks: Lessons of Experience from Britain," Cambridge Working Papers in Economics 0709, Faculty of Economics, University of Cambridge.
- Lewis Evans & Graeme Guthrie, 2006. "Incentive Regulation of Prices When Costs are Sunk," Journal of Regulatory Economics, Springer, vol. 29(3), pages 239-264, 05.
- Pollitt, Michael G., 2012. "Lessons from the history of independent system operators in the energy sector," Energy Policy, Elsevier, vol. 47(C), pages 32-48.
- Joskow Paul L., 2008. "Incentive Regulation and Its Application to Electricity Networks," Review of Network Economics, De Gruyter, vol. 7(4), pages 1-14, December.
- Leonardo Meeus & Marcelo Saguan & Jean-Michel Glachant & Ronnie Belmans, 2010. "Smart Regulation for Smart Grids," RSCAS Working Papers 2010/45, European University Institute.
- Haney, Aoife Brophy & Pollitt, Michael G., 2009.
"Efficiency analysis of energy networks: An international survey of regulators,"
Elsevier, vol. 37(12), pages 5814-5830, December.
- Brophy Haney, A. & Pollitt, M.G., 2009. "Efficiency Analysis of Energy Networks : An International Survey of Regulators," Cambridge Working Papers in Economics 0926, Faculty of Economics, University of Cambridge.
- Jamasb, Tooraj & Pollitt, Michael, 2008. "Liberalisation and R&D in network industries: The case of the electricity industry," Research Policy, Elsevier, vol. 37(6-7), pages 995-1008, July.
- E. Brousseau & J-M- Glachant, 2011.
"Regulators as Reflexive Governance Platforms,"
Competition and Regulation in Network Industries,
Intersentia, vol. 12(3), pages 194-210, September.
- Brophy Haney, A. & Pollitt, M.G., 2010. "Exploring the Determinants of ‘Best Practice’ in Network Regulation: The Case of the Electricity Sector," Cambridge Working Papers in Economics 1020, Faculty of Economics, University of Cambridge.
- Rious Vincent & Perez Yannick & Glachant Jean-Michel, 2011. "Power Transmission Network Investment as an Anticipation Problem," Review of Network Economics, De Gruyter, vol. 10(4), pages 1-23, December.
- Jamasb, T. & Nillesen, P. & Pollitt, M., 2003. "Strategic Behaviour under Regulation Benchmarking," Cambridge Working Papers in Economics 0312, Faculty of Economics, University of Cambridge.
When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00767872. 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: (CCSD)
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.