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Hybrid revenue caps and incentive regulation

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  • Lantz, Björn

Abstract

This paper analyzes the incentive effects of a hybrid revenue cap on a regulated monopolistic firm using non-discriminatory two-part pricing. It is shown that the fixed and the variable part of the cap have different meanings in terms of regulation -- the fixed part of a hybrid revenue cap should be used to control the profit level of the regulated firm while the variable part should be used to control the social efficiency level. Since detailed information about the firm's cost function is required to determine the revenue cap parameters, the overall conclusion is that revenue caps are a rather bad idea in the area of incentive regulation.

Suggested Citation

  • Lantz, Björn, 2008. "Hybrid revenue caps and incentive regulation," Energy Economics, Elsevier, vol. 30(3), pages 688-695, May.
    • Handle: RePEc:eee:eneeco:v:30:y:2008:i:3:p:688-695
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    References listed on IDEAS

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    1. Sappington, David E M & Sibley, David S, 1988. "Regulating without Cost Information: The Incremental Surplus Subsidy Scheme," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(2), pages 297-306, May.
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    Cited by:

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    2. Valdes, Victor & Corzo, Oscar & Canfield, Carlos, 2024. "Airport incentive regulation in practice," Journal of Air Transport Management, Elsevier, vol. 117(C).
    3. Campbell, Alrick, 2018. "Cap prices or cap revenues? The dilemma of electric utility networks," Energy Economics, Elsevier, vol. 74(C), pages 802-812.

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