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Regulatory instruments and their effects on investment behavior


  • Burns, Phil
  • Riechmann, Christoph


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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    Cited by:

    1. Ian Alexander & Clive Harris, 2005. "The Regulation of Investment in Utilities: Concepts and Applications," World Bank Publications, The World Bank, number 7293, January.
    2. 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).
    3. 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.
    4. Burns, Phil & Riechmann, Christoph, 2004. "Regulatory instruments and investment behaviour," Utilities Policy, Elsevier, vol. 12(4), pages 211-219, December.
    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, vol. 133(C), pages 40-55.


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