IDEAS home Printed from
   My bibliography  Save this paper

Incentive Regulation and Network Innovations


  • Dierk Bauknecht


Smart Grids require innovations in the electricity networks, mainly on the level of the distributed system operator (DSO). A main objective is to increase the share of distributed generation (DG) connected to that network level, but also to enable load management on the demand side. This paper analyses network innovations in the context of the regulatory framework, namely incentive regulation. It is structured as follows: The first section examines how cost-based and price-based regulatory schemes influence RD&D by regulated companies. This is followed by a discussion of various regulatory instruments to stimulate innovation. The third section provides a more general discussion of the pros and cons of promoting network innovations via network regulation.

Suggested Citation

  • Dierk Bauknecht, 2011. "Incentive Regulation and Network Innovations," RSCAS Working Papers 2011/02, European University Institute.
  • Handle: RePEc:rsc:rsceui:2011/02

    Download full text from publisher

    File URL:
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    1. Joshua Gans & Stephen King, 2003. "Access Holidays for Network Infrastructure Investment," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 10(2), pages 163-178.
    2. Mayo, John W & Flynn, Joseph E, 1988. "The Effects of Regulation on Research and Development: Theory and Evidence," The Journal of Business, University of Chicago Press, vol. 61(3), pages 321-336, July.
    3. Pollitt, M, 2007. "Liberalisation and Regulation in Electricity Systems: How can we get the balance right?," Cambridge Working Papers in Economics 0753, Faculty of Economics, University of Cambridge.
    4. Kahn, Alfred E. & Tardiff, Timothy J. & Weisman, Dennis L., 1999. "The Telecommunications Act at three years: an economic evaluation of its implementation by the Federal Communications Commission," Information Economics and Policy, Elsevier, vol. 11(4), pages 319-365, December.
    5. Ai, Chunrong & Sappington, David E M, 2002. "The Impact of State Incentive Regulation on the U.S. Telecommunications Industry," Journal of Regulatory Economics, Springer, vol. 22(2), pages 133-159, September.
    6. Joshua S. Gans & Stephen P. King, 2004. "Access Holidays and the Timing of Infrastructure Investment," The Economic Record, The Economic Society of Australia, vol. 80(248), pages 89-100, March.
    7. Bailey, Elizabeth E., 1974. "Innovation and regulation," Journal of Public Economics, Elsevier, vol. 3(3), pages 285-295, August.
    8. Stephen Littlechild, 2007. "Beyond regulation," Chapters,in: Utility Regulation in Competitive Markets, chapter 1 Edward Elgar Publishing.
    9. 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.
    10. Clemenz, Gerhard, 1991. "Optimal Price-Cap Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 39(4), pages 391-408, June.
    11. G. Brunekreeft & E. Ehlers, 2006. "Ownership Unbundling of Electricity Distribution Networks and Distributed Generation," Competition and Regulation in Network Industries, Intersentia, vol. 7(1), pages 63-87, March.
    12. Bourreau, Marc & Dogan, Pinar, 2001. "Regulation and innovation in the telecommunications industry," Telecommunications Policy, Elsevier, vol. 25(3), pages 167-184, April.
    13. Wesley A. Magat, 1976. "Regulation and the Rate and Direction of Induced Technical Change," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 478-496, Autumn.
    14. Joskow, P.L., 1989. "Regulatory Failure, Regulatory Reform And Structural Change In The Electric Power Industry," Working papers 516, Massachusetts Institute of Technology (MIT), Department of Economics.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Lo Schiavo, Luca & Delfanti, Maurizio & Fumagalli, Elena & Olivieri, Valeria, 2013. "Changing the regulation for regulating the change: Innovation-driven regulatory developments for smart grids, smart metering and e-mobility in Italy," Energy Policy, Elsevier, vol. 57(C), pages 506-517.
    2. Nele Friedrichsen & Christine Brandstätt & Gert Brunekreeft, 2014. "The need for more flexibility in the regulation of smart grids – stakeholder involvement," International Economics and Economic Policy, Springer, vol. 11(1), pages 261-275, February.
    3. repec:aen:journl:ej38-3-jenkins is not listed on IDEAS
    4. de Sépibus, Joëlle, 2013. "The Integration of Electricity from Renewable Energy Sources in the European Union Electricity Market – The case for “Smart Grids”," Papers 621, World Trade Institute.
    5. Nykamp, Stefan & Andor, Mark & Hurink, Johann L., 2012. "‘Standard’ incentive regulation hinders the integration of renewable energy generation," Energy Policy, Elsevier, vol. 47(C), pages 222-237.
    6. Paulo Moisés Costa & Nuno Bento & Vítor Marques, 2014. "Dealing with Technological Risk in a Regulatory Context: The Case of Smart Grids," GEMF Working Papers 2014-11, GEMF, Faculty of Economics, University of Coimbra.

    More about this item


    incentive regulation; price-based regulation; cost-based regulation; Rd&D; network innovations;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rsc:rsceui:2011/02. 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: (RSCAS web unit). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.