Optimal Sliding Scale Regulation: An Application to Regional Electricity Distribution in England and Wales

David Hawdon, Lester Charles Hunt (), Paul Levine () and Neil Rickman

No 4934, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper examines optimal price (i.e. ‘sliding scale’) regulation of a monopoly when efficiency and managerial effort are not observed. We show how to operationalize this model of incentive regulation and use actual data from electricity distribution in England and Wales to make welfare comparisons of sliding scale regulation with a price cap regime and the First-Best (the full information case). Our method enables us to quantify technical uncertainty as faced by the electricity regulator in the 1990s and shows that there are significant welfare gains from a sliding scale relative to the price cap regime.

Keywords: electricity distribution; regulation; sliding scale (search for similar items in EconPapers)
JEL-codes: L51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ene, nep-geo and nep-reg
Date: Written 2005-02
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Related works:
Working Paper: Optimal sliding scale regulation: An application to regional electricity distribution in England and Wales (2005)
Journal Article: Optimal sliding scale regulation: an application to regional electricity distribution in England and Wales (2007)
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