Setting the X Factor in Price Cap Regulation Plans

Jeffrey Bernstein and David Sappington

No 6622, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Despite the popularity of price cap regulation in practice, the economic literature provides relatively little guidance on how to determine the X factor, which is the rate at which inflation -adjusted output prices must fall under price cap plans. We review the standard principles that inform the choice of the X factor, and then consider important extensions. We analyze appropriate modifications of the X factor: (1) when only a subset of the firm's products are subject to price cap regulation, and when product-specific costs and productivity cannot be measured; (2) when the pricing decisions of the regulated firm affect the economy-wide inflation rate; and (3) in the presence of structural changes in the industry, such as a strengthening of competitive forces.

JEL-codes: D24 L51 (search for similar items in EconPapers)
Date: 1998-06
New Economics Papers: this item is included in nep-pub
Note: PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Journal of Regulatory Economics, Vol. 16 (1999): 5-25.

Downloads: (external link)
http://www.nber.org/papers/w6622.pdf (application/pdf)

Related works:
Journal Article: Setting the X Factor in Price-Cap Regulation Plans (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:6622

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w6622

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().