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Price cap regulation and water quality

Thomas Bue Bjørner (), Jacob Victor Hansen () and Astrid Fanger Jakobsen ()
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Thomas Bue Bjørner: Danish Competition and Consumer Authority
Jacob Victor Hansen: Danish Competition and Consumer Authority
Astrid Fanger Jakobsen: Danish Competition and Consumer Authority

Journal of Regulatory Economics, 2021, vol. 60, issue 2, No 1, 95-116

Abstract: Abstract A number of studies suggest that price cap regulation may reduce the quality of the regulated good. This paper analyzes the impact on drinking water quality of a shift from cost-of-service to price cap regulation in Denmark, using a balanced panel of drinking water companies, for the period 2008 to 2016. The price cap was introduced in 2011 for companies above a certain threshold size. We exploit this quasi-experimental setting to estimate the impact of the shift in regulation using a regression discontinuity difference-in-differences approach. Our measure of drinking water quality is based on results from a compulsory surveillance drinking water testing program, which investigates whether or not water samples contain a level of microbiological content that exceeds limit values. More specifically, we compare the change over time in water quality for a treatment group of 113 companies regulated with price caps that have a size close to the threshold size for being regulated, with the change in drinking water quality for a control group of 282 companies that are below but close to the threshold size. We find that the shift in regulation has not caused a reduction in drinking water quality in Denmark.

Keywords: Price cap; Drinking water quality; Quasi-experiment; Regression discontinuity; Multi-period difference-in-differences (search for similar items in EconPapers)
JEL-codes: C21 L15 L51 L95 Q25 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11149-021-09439-y

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