Incentive Effects of Rate-of-Return Regulation in Hong Kong

Pun-Lee Lam

Journal of Regulatory Economics, 1997, vol. 12, issue 3, 319-25

Abstract: A recent paper published by this journal (Peles and Whittred 1996) discussed the regulatory arrangement of the Scheme of Control in Hong Kong. Instead of encouraging electric utilities to finance their assets proportionately more by equity as argued by the authors, the Scheme has in fact given them an incentive to rely on debt financing. A major incentive aspect of the Scheme lies in the formation of a development fund for making internal transfers. This development fund arrangement has provided an incentive for the two electric utilities to improve efficiency and has facilitated the expansion of the electric power industry. Copyright 1997 by Kluwer Academic Publishers

Date: 1997
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