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Price Cap Regulation: A Case Study of Some Pitfalls of Implementation

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  • Isaac, R Mark

Abstract

There has been considerable discussion of price-cap regulation as an alternative to traditional rate-of-return regulation. This paper examines some of the practical pitfalls of price-cap regulation. First, a model of a terminating price cap is developed. Next, this model is used to propose some problems of implementation. These problems are evaluated in the context of a case study of the Tucson Electric Power Company, which faced a type of price cap for several years in the 1980s. Extensions of the specific case to more general lessons about price-cap regulation are considered. Copyright 1991 by Kluwer Academic Publishers

Suggested Citation

  • Isaac, R Mark, 1991. "Price Cap Regulation: A Case Study of Some Pitfalls of Implementation," Journal of Regulatory Economics, Springer, vol. 3(2), pages 193-210, June.
    • Handle: RePEc:kap:regeco:v:3:y:1991:i:2:p:193-210
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    Cited by:

    1. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 27, pages 1557-1700, Elsevier.
    2. Paul L. Joskow, 2006. "Incentive Regulation for Electricity Networks," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 4(02), pages 3-9, July.
    3. Paul L. Joskow, 2014. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344, National Bureau of Economic Research, Inc.
    4. Ingo Vogelsang, 2004. "Network Utilities in the U.S. - Sector Reforms without Privatization," CESifo Working Paper Series 1142, CESifo.
    5. Pazoki, Mostafa & Samarghandi, Hamed & Behroozi, Mehdi, 2024. "Increasing supply chain resiliency through equilibrium pricing and stipulating transportation quota regulation," Omega, Elsevier, vol. 127(C).
    6. repec:ces:ifodic:v:4:y:2006:i:2:p:14567496 is not listed on IDEAS
    7. Oliver, Matthew E., 2019. "Pricing flexibility under rate-of-return regulation: Effects on network infrastructure investment," Economic Modelling, Elsevier, vol. 78(C), pages 150-161.
    8. Paul L. Joskow, 2006. "Incentive Regulation for Electricity Networks," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 4(2), pages 3-9, 07.
    9. Noel Uri, 2003. "The Effect of Incentive Regulation in Telecommunications in the United States," Quality & Quantity: International Journal of Methodology, Springer, vol. 37(2), pages 169-191, May.
    10. Mostafa Pazoki & Hamed Samarghandi & Mehdi Behroozi, 2023. "Increasing Supply Chain Resiliency Through Equilibrium Pricing and Stipulating Transportation Quota Regulation," Papers 2308.00681, arXiv.org, revised Oct 2023.
    11. Weisman, Dennis L., 2002. "Is there 'Hope' for price cap regulation?," Information Economics and Policy, Elsevier, vol. 14(3), pages 349-370, September.
    12. Pfeifenberger, Johannes P & Tye, William B, 1995. "Handle with care : A primer on incentive regulation," Energy Policy, Elsevier, vol. 23(9), pages 769-779, September.
    13. Breton, Michèle & Kharbach, Mohammed, 2012. "Transportation and storage under a dynamic price cap regulation process," Energy Economics, Elsevier, vol. 34(4), pages 918-929.
    14. Uri, Noel D., 2001. "The effect of incentive regulation on productive efficiency in telecommunications," Journal of Policy Modeling, Elsevier, vol. 23(8), pages 825-846, November.

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