On the incentive properties of revenue cap regulation

Dennis L. Weisman

Energy Economics, 2025, vol. 141, issue C

Abstract: Revenue cap regulation (RCR) is increasingly common in the energy sector because it purportedly reduces the regulated firm's disincentive to promote conservation. In comparison with price-cap regulation, RCR can yield higher prices, greater energy conservation, lower service quality and decreased cost-reducing innovation. The distortionary effects of earnings sharing on investment in cost-reducing innovation may be lessened under RCR. These properties hold even when the regulated firm is further constrained with a price cap that is set equal to the minimum price that satisfies the RCR constraint.

Keywords: Price caps; Revenue caps; Incentives; Conservation; Efficiency (search for similar items in EconPapers)
JEL-codes: L51 L96 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:141:y:2025:i:c:s0140988324007618

DOI: 10.1016/j.eneco.2024.108052

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