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Regulatory instruments and their effects on investment behavior

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  • Burns, Phil
  • Riechmann, Christoph

Abstract

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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    References listed on IDEAS

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    1. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-259, April.
    2. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
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    Cited by:

    1. Jörg Bergmann & Oliver Franz & Dirk Hachmeister & Stefan Hadré & Daniel Schäffner, 2011. "Erreichbarkeit regulatorischer Renditen für Betreiber von Energienetzen," Schmalenbach Journal of Business Research, Springer, vol. 63(64), pages 52-75, January.
    2. Rahmatallah Poudineh & Tooraj Jamasb, 2016. "A New Perspective: Investment and Efficiency under Incentive Regulation," The Energy Journal, , vol. 37(1), pages 158-182, January.
    3. 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.
    4. Burns, Phil & Riechmann, Christoph, 2004. "Regulatory instruments and investment behaviour," Utilities Policy, Elsevier, vol. 12(4), pages 211-219, December.
    5. Ian Alexander & Clive Harris, 2005. "The Regulation of Investment in Utilities: Concepts and Applications," World Bank Publications - Books, The World Bank Group, number 7293.
    6. 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.
    7. Müller, Christine & Growitsch, Christian & Wissner, Matthias, 2010. "Regulierung und Investitionsanreize in der ökonomischen Theorie. IRIN Working Paper im Rahmen des Arbeitspakets: Smart Grid-gerechte Weiterentwicklung der Anreizregulierung," WIK Discussion Papers 349, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    8. Ryan P. Scott & Tyler A. Scott & Robert A. Greer, 2022. "Who owns the pipes? Utility ownership, infrastructure conditions, and methane emissions in United States natural gas distribution," Review of Policy Research, Policy Studies Organization, vol. 39(2), pages 170-198, March.

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