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Designing Incentive Regulation in the Electricity Sector

Author

Listed:
  • Brown, David P.

    (University of Alberta, Department of Economics)

  • Sappington, David E. M.

    (University of Florida)

Abstract

In industries with extensive infrastructure needs and pronounced scale economies, consumers can be better served by well-designed regulation than by competition. Regulation that replicates the discipline of competitive markets can enhance the welfare of electricity consumers. However, replicating competitive discipline is challenging when regulators have limited knowledge of relevant industry conditions and when the regulators’ policy instruments are restricted. Incentive regulation attempts to harness the regulated firm’s superior knowledge of industry conditions to achieve regulatory objectives. This paper reviews key principles of incentive regulation, and examines how incentive regulation can be designed to enhance performance in the electricity sector.

Suggested Citation

  • Brown, David P. & Sappington, David E. M., 2023. "Designing Incentive Regulation in the Electricity Sector," Working Papers 2023-10, University of Alberta, Department of Economics.
    • Handle: RePEc:ris:albaec:2023_010
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    File URL: https://sites.ualberta.ca/~econwps/2023/wp2023-10.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Incentive Regulation; Electricity;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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