Optimal sliding scale regulation: An application to regional electricity distribution in England and Wales

David Hawdon, Lester Charles Hunt (), Paul Levine () and Neil Rickman ()
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David Hawdon: Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey
Neil Rickman: Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey

No 111, Surrey Energy Economics Centre (SEEC), Department of Economics Discussion Papers (SEEDS) from Surrey Energy Economics Centre (SEEC), Department of Economics, University of Surrey

Abstract: This paper examines optimal price (i.e. ‘sliding scale’) regulation of a monopoly when productivity and managerial effort are not observed. We show how to operationalise 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 stylised 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 stylised price cap regime.

Keywords: Sliding scale; regulation; electricity distribution (search for similar items in EconPapers)
JEL-codes: L51 (search for similar items in EconPapers)
Date: Written 2005-11

Published in Oxford Economic Papers, 59(3), July 2007, pp. 458-485 (Revised Version).

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http://www.seec.surrey.ac.uk/Research/SEEDS/SEEDS111.pdf (application/pdf)

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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