Regulation and Contracts for Utility Services: Substitutes or Complements? Lessons from UK Railway and Electricity History

Jon Stern

Journal of Economic Policy Reform, 2003, vol. 6, issue 4, 193-215

Abstract: It is frequently suggested that regulation by contract can effectively substitute for regulation by a specialist regulatory agency for utility service industries. We examine these arguments and consider legal aspects and the historical experience of the UK as regards railways and electricity. We conjecture that regulation and contracts are complements for network industries rather than substitutes so that a regulatory agency allows for better and simpler contracts, which are easier to monitor, enforce and revise. This is what would be expected from the theory of incomplete contracts. We demonstrate that UK historical experience is strongly consistent with this view.

Date: 2003
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DOI: 10.1080/134841280410001698978

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