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Regulatory instruments and their effects on investment behavior

Author

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  • Burns, Phil
  • Riechmann, Christoph

Abstract

Regulatory instruments have long been understood to have a powerful effect on investment, and part of the motivation for introducing higher-powered regulatory regimes and contracts was to reduce incentives for inefficiency and over-investment (gold plating) inherent in cost-plus regulatory schemes. In practice, the mix of incentives and the institutional framework that make up a higher-powered regulatory regime can also lead to unintended distortions on investment behavior. The authors examine the key drivers of investment behavior and provide some examples of how these drivers have affected investment in practice. They conclude with a set of key areas and interrelationships that are at the core of a regulatory settlement, and therefore need to be designed appropriately to drive efficient investment behavior.

Suggested Citation

  • Burns, Phil & Riechmann, Christoph, 2004. "Regulatory instruments and their effects on investment behavior," Policy Research Working Paper Series 3292, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3292
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    References listed on IDEAS

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    6. Pines, David & Sadka, Efraim, 1986. "Comparative statics analysis of a fully closed city," Journal of Urban Economics, Elsevier, vol. 20(1), pages 1-20, July.
    7. Brueckner, Jan K., 1987. "The structure of urban equilibria: A unified treatment of the muth-mills model," Handbook of Regional and Urban Economics,in: E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 2, chapter 20, pages 821-845 Elsevier.
    8. Wheaton, William C., 1974. "A comparative static analysis of urban spatial structure," Journal of Economic Theory, Elsevier, vol. 9(2), pages 223-237, October.
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    Citations

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    Cited by:

    1. Rahmatallah Poudineh and Tooraj Jamasb, 2015. "A New Perspective: Investment and Efficiency under Incentive Regulation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    2. Burns, Phil & Riechmann, Christoph, 2004. "Regulatory instruments and investment behaviour," Utilities Policy, Elsevier, vol. 12(4), pages 211-219, December.
    3. Ian Alexander & Clive Harris, 2005. "The Regulation of Investment in Utilities: Concepts and Applications," World Bank Publications, The World Bank, number 7293.
    4. Simona Benedettini & Federico Pontoni, "undated". "Electricity distribution investments: no country for old rules? A critical overview of UK and Italian regulations," IEFE Working Papers 50, IEFE, Center for Research on Energy and Environmental Economics and Policy, Universita' Bocconi, Milano, Italy.
    5. Parkinson, Aidan & Guthrie, Peter, 2014. "Evaluating the energy performance of buildings within a value at risk framework with demonstration on UK offices," Applied Energy, Elsevier, pages 40-55.

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