IDEAS home Printed from https://ideas.repec.org/a/mhr/jinste/urnsici0932-4569(200406)1602_243tptipr_2.0.tx_2-x.html
   My bibliography  Save this article

Two Proposals to Improve Price-Cap Regulation

Author

Listed:
  • Robert D. Cairns
  • Anthony G. Heyes

Abstract

Under price-cap regulation, economic gains can be unlocked by permitting "trades" which do not make consumers worse off. We propose a simple method for "refereeing" such trades, based on compensating variation and utilizing Fisher's ideal price index. It is theoretically preferred to the Laspeyres indices used in price-cap regulation, but requires a small amount more effort. The method can be extended, in a natural way, by computing one or both of two adjustments for nonhomotheticity of preferences and for welfare or political weights. These considerations are important in reality, but either extension would require considerably more effort.

Suggested Citation

  • Robert D. Cairns & Anthony G. Heyes, 2004. "Two Proposals to Improve Price-Cap Regulation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(2), pages 243-251, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200406)160:2_243:tptipr_2.0.tx_2-x
    as

    Download full text from publisher

    File URL: https://www.mohrsiebeck.com/en/article/two-proposals-to-improve-price-cap-regulation-1016280932456041438768
    Download Restriction: Fulltext access is included for subscribers to the printed version.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Baumol, William J & Bailey, Elizabeth E & Willig, Robert D, 1977. "Weak Invisible Hand Theorems on the Sustainability of Multiproduct Natural Monopoly," American Economic Review, American Economic Association, vol. 67(3), pages 350-365, June.
    2. Feldstein, Martin S, 1972. "Distributional Equity and the Optimal Structure of Public Prices," American Economic Review, American Economic Association, vol. 62(1), pages 32-36, March.
    3. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762, October.
    4. Braeutigam, Ronald R., 1993. "A regulatory bargain for diversified enterprises," International Journal of Industrial Organization, Elsevier, vol. 11(1), pages 1-20, March.
    5. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Blow, Laura & Crawford, Ian, 2002. "A nonparametric method for valuing new goods," Working Paper Series 143, European Central Bank.
    2. Huffman, Wallace, 2004. "Marketizing U.S. Production in the Post-War Era: Implications for Estimating CPI Bias and Real Income from a Complete-Household-Demand System," ISU General Staff Papers 200406010700001238, Iowa State University, Department of Economics.
    3. Bergh , Andreas & Nilsson, Therese, 2008. "Do economic liberalization and globalization increase income inequality?," Working Papers 2008:12, Lund University, Department of Economics.
    4. Lancker, Kira & Bronmann, Julia, 2020. "Quantifying consumers’ love for marine biodiversity," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304214, Agricultural and Applied Economics Association.
    5. Redding, Stephen & Weinstein, David, 2016. "A Unified Approach to Estimating Demand and Welfare," CEPR Discussion Papers 11421, C.E.P.R. Discussion Papers.
    6. Stephen J Redding & David E Weinstein, 2020. "Measuring Aggregate Price Indices with Taste Shocks: Theory and Evidence for CES Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 503-560.
    7. Tsur, Yacov & Dinar, Ariel, 1995. "Efficiency and equity considerations in pricing and allocating irrigation water," Policy Research Working Paper Series 1460, The World Bank.
    8. Diego Comin & Danial Lashkari & Martí Mestieri, 2021. "Structural Change With Long‐Run Income and Price Effects," Econometrica, Econometric Society, vol. 89(1), pages 311-374, January.
    9. Adam Szulc, 1996. "Economic Transition and Poverty: The Case of the Vysehrad Group Countries," LIS Working papers 138, LIS Cross-National Data Center in Luxembourg.
    10. Barnett, William A. & Chauvet, Marcelle, 2011. "How better monetary statistics could have signaled the financial crisis," Journal of Econometrics, Elsevier, vol. 161(1), pages 6-23, March.
    11. Chambers, Robert G. & Quiggin, John, 2001. "Primal and Dual Approaches to the Analysis of Risk Aversion," Working Papers 197602, University of Maryland, Department of Agricultural and Resource Economics.
    12. Travis D. Nesmith, 2007. "Rational Seasonality," International Symposia in Economic Theory and Econometrics, in: Functional Structure Inference, pages 227-255, Emerald Group Publishing Limited.
    13. Angus Deaton & Olivier Dupriez, 2011. "Purchasing Power Parity Exchange Rates for the Global Poor," American Economic Journal: Applied Economics, American Economic Association, vol. 3(2), pages 137-166, April.
    14. Sutirtha Bandyopadhyay & Bharat Ramaswami, 2022. "The representative agent bias in cost of living indices," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 155-178, January.
    15. Nicholas Oulton, 2023. "The effect of changes in the terms of trade on GDP and welfare: A Divisia approach to the System of National Accounts," Manchester School, University of Manchester, vol. 91(4), pages 261-282, July.
    16. W. Erwin Diewert, 1988. "The Early History of Price Index Research," NBER Working Papers 2713, National Bureau of Economic Research, Inc.
    17. Ferrier, Peyton M. & Zhen, Chen, 2017. "The Role of Income in Explaining the Shift from Preserved to Fresh Vegetable Purchases," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(3), September.
    18. Odd E. Nygård & John T. Revesz, 2015. "Optimal indirect taxation and the uniformity debate: A review of theoretical results and empirical contributions," Discussion Papers 809, Statistics Norway, Research Department.
    19. Barewal, S. & Goddard, D., 1985. "The Parameters of Consumer Food Demand in Canada," Working Papers 243862, Agriculture and Agri-Food Canada.
    20. Sweitzer, Megan & Byrne, Anne T. & Page, Elina T. & Carlson, Andrea & Kantor, Linda & Muth, Mary K. & Karns, Shawn & Zhen, Chen, 2024. "Development of the Food-at-Home Monthly Area Prices Data," Technical Bulletins 342467, United States Department of Agriculture, Economic Research Service.

    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mhr:jinste:urn:sici:0932-4569(200406)160:2_243:tptipr_2.0.tx_2-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Thomas Wolpert (email available below). General contact details of provider: https://www.mohrsiebeck.com/jite .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.