Implementing Incentive Regulation and Regulatory 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:||23 Jun 2012|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.eui.eu/RSCAS/
More information through EDIRC
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.:
- 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.
- 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.
- Evans, Lewis & Guthrie, Graeme, 2006. "Incentive Regulation of Prices when Costs are Sunk," Working Paper Series 3875, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
- 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.
- 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.
- Leonardo Meeus & Marcelo Saguan & Jean-Michel Glachant & Ronnie Belmans, 2010. "Smart Regulation for Smart Grids," RSCAS Working Papers 2010/45, European University Institute.
- Rious, Vincent & Glachant, Jean-Michel & Perez, Yannick & Dessante, Philippe, 2008.
"The diversity of design of TSOs,"
Elsevier, vol. 36(9), pages 3323-3332, September.
- Vincent Rious & Jean-Michel Glachant & Yannick Perez & Philippe Dessante, 2008. "The diversity of design of TSOs," Post-Print hal-00318518, HAL.
- 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-00339836, 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.
- Jamasb, T. & Nillesen, P. & Pollitt, M., 2003. "Strategic Behaviour under Regulation Benchmarking," Cambridge Working Papers in Economics 0312, Faculty of Economics, University of Cambridge.
- Jean-Michel Glachant, 2010. "The Achievement of the EU Electricity Internal Market through Market Coupling," RSCAS Working Papers 2010/87, European University Institute.
- Haikel Khalfallah & Jean-Michel Glachant, 2012. "An assessment of the tools of incentive regulation in electricity networks," ECONOMICS AND POLICY OF ENERGY AND THE ENVIRONMENT, FrancoAngeli Editore, vol. 0(1), pages 121-152.
- 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.
- Haney, Aoife Brophy & Pollitt, Michael G., 2009. "Efficiency analysis of energy networks: An international survey of regulators," Energy Policy, Elsevier, vol. 37(12), pages 5814-5830, December.
- 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.
- 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.
- Saplacan, Roxana, 2008. "Competition in electricity distribution," Utilities Policy, Elsevier, vol. 16(4), pages 231-237, December.
- 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.
- Yu, William & Jamasb, Tooraj & Pollitt, Michael, 2009. "Does weather explain cost and quality performance? An analysis of UK electricity distribution companies," Energy Policy, Elsevier, vol. 37(11), pages 4177-4188, November.
- 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.
When requesting a correction, please mention this item's handle: RePEc:rsc:rsceui:2012/31. 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)
If references are entirely missing, you can add them using this form.