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Setting the X Factor in Price-Cap Regulation Plans

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Author Info
Bernstein, Jeffrey I
Sappington, David E M

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Abstract

Despite the popularity of price-cap regulation in practice, the economic literature provides limited guidance on how to determine the X factor, which is the rate at which inflation-adjusted output prices must fall under price-cap plans. We review the relevant basic principles, and then determine how to set the X factor: (1) when only a subset of the firm's products are subject to price-cap regulation, and when product-specific costs and productivity cannot be measured; (2) when changes in regulated prices affect the economy-wide inflation rate; and (3) in the presence of such structural changes as strengthened competitive forces. Copyright 1999 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 16 (1999)
Issue (Month): 1 (July)
Pages: 5-25
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Handle: RePEc:kap:regeco:v:16:y:1999:i:1:p:5-25

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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.:
  1. Diewert, W.E., 1993. "Index Number Issues in Incentive Regulation," UBC Departmental Archives 93-06, UBC Department of Economics.
  2. Tracy R. Lewis & David E.M. Sappington, 1989. "Regulatory Options and Price-Cap Regulation," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 405-416, Autumn. [Downloadable!] (restricted)
  3. M.E. Beesley & S.C. Littlechild, 1989. "The Regulation of Privatized Monopolies in the United Kingdom," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 454-472, Autumn. [Downloadable!] (restricted)
  4. Diewert, W.E., 1993. "Duality approaches to microeconomic theory," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 12, pages 535-599 Elsevier. [Downloadable!] (restricted)
  5. Staranczak, Genio A. & Sepulveda, Edgardo R. & Dilworth, Peter A. & Shaikh, Shafi A., 1994. "Industry structure, productivity and international competitiveness: the case of telecommunications," Information Economics and Policy, Elsevier, vol. 6(2), pages 121-142, July. [Downloadable!] (restricted)
  6. Richard Schmalensee, 1989. "Good Regulatory Regimes," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 417-436, Autumn. [Downloadable!] (restricted)
  7. Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn. [Downloadable!] (restricted)
  8. Brennan, Timothy J, 1989. "Regulating by Capping Prices," Journal of Regulatory Economics, Springer, vol. 1(2), pages 133-47, June.
  9. Bernstein, Jeffrey I, 1989. "An Examination of the Equilibrium Specification and Structure of Production for Canadian Telecommunications," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(3), pages 265-82, July-Sept. [Downloadable!] (restricted)
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  10. Joel Sobel, 1997. "A Re-examination of Yardstick Competition," University of California at San Diego, Economics Working Paper Series 97-25, Department of Economics, UC San Diego. [Downloadable!]
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  11. Dag Morten Dalen, 1998. "Yardstick Competition and Investment Incentives," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 7(1), pages 105-126, 03. [Downloadable!] (restricted)
  12. Ellen M. Pint, 1992. "Price-Cap versus Rate-of-Return Regulation in a Stochastic-Cost Model," RAND Journal of Economics, The RAND Corporation, vol. 23(4), pages 564-578, Winter. [Downloadable!] (restricted)
  13. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790.
  14. Cabral, Luis M B & Riordan, Michael H, 1989. "Incentives for Cost Reduction under Price Cap Regulation," Journal of Regulatory Economics, Springer, vol. 1(2), pages 93-102, June.
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Cited by:
(explanations, 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.)

  1. Noel D. Uri, 2001. "Technical Efficiency, Allocative Efficiency, and the Implementation of a Price Cap Plan in Telecommunications in the United States," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 163-186, May. [Downloadable!]
  2. Noel Uri, 2002. "Assessing the Effect of Incentive Regulation on Productive Efficiency in Telecommunications in the United States," European Journal of Law and Economics, Springer, vol. 13(2), pages 113-127, March. [Downloadable!] (restricted)
  3. Paul L Joskow, 2005. "Incentive Regulation In Theory And Practice - Electricity Distribution And Transmission Networks," Working Papers 0514, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
    Other versions:
  4. Hawdon, David & Hunt, Lester & Levine, Paul L & Rickman, Neil, 2005. "Optimal Sliding Scale Regulation: An Application to Regional Electricity Distribution in England and Wales," CEPR Discussion Papers 4934, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Mark Armstrong & David Sappington, 2005. "Regulation, Competition and Liberalization," Industrial Organization 0505011, EconWPA, revised 07 Oct 2005. [Downloadable!]
    Other versions:
  6. Kirkpatrick, Colin & Parker, David & Zhang, Yin-Fang, 2004. "Price and Profit Regulation in Developing and Transition Economies, Methods Used and Problems Faced: A Survey of the Regulators," Centre on Regulation and Competition (CRC) Working papers 30596, University of Manchester, Institute for Development Policy and Management (IDPM). [Downloadable!]
  7. David E. M. Sappington, 2003. "The Effects of Incentive Regulation on Retail Telephone Service Quality in the United States," Review of Network Economics, Concept Economics, vol. 2(4), pages 355-375, December. [Downloadable!]
  8. Noel Uri, 2001. "Productivity Change, Technical Progress, and Efficiency Improvement in Telecommunications," Review of Industrial Organization, Springer, vol. 18(3), pages 283-300, May. [Downloadable!] (restricted)
  9. Timothy J. Tardiff & William E. Taylor, 2003. "Aligning Price Regulation with Telecommunications Competition," Review of Network Economics, Concept Economics, vol. 2(4), pages 338-354, December. [Downloadable!]
  10. Vladimir Hlasny, 2008. "The impact of restructuring and deregulation on gas rates," Journal of Regulatory Economics, Springer, vol. 34(1), pages 27-52, August. [Downloadable!] (restricted)
  11. Noel Uri, 2003. "Service Quality Effects of Incentive Regulation on Access Service in Telecommunications in the United States," European Journal of Law and Economics, Springer, vol. 16(3), pages 369-390, November. [Downloadable!] (restricted)
  12. Gianni De Fraja & Alberto Iozzi, . "Short Term and Long Term Effects of Price Cap Regulation," Discussion Papers 00/61, Department of Economics, University of York. [Downloadable!]
  13. Jeffrey Bernstein & Juan Hernandez & Jose Rodriguez & Agustin Ros, 2006. "X-Factor updating and total factor productivity growth: the case of peruvian telecommunications, 1996–2003," Journal of Regulatory Economics, Springer, vol. 30(3), pages 316-342, November. [Downloadable!] (restricted)
    Other versions:
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