Core References

• Resetting Price Controls for Privatized Utilities: A Manual for Regulators Washington, D.C.: World Bank, 1999, Chapter 4. Green, Richard, and Martin Rodriguez Pardina

  Explains that in setting the duration of the price controls, a regulator must trade off the productive efficiency that increases with duration against allocative efficiency, which decreases with duration if prices become significantly higher than costs over time. That is to say, the regulator must weigh the increased incentives of long intervals against the risks that prices will get out of line with costs. Holds that during privatization, longer intervals may be beneficial since there may be considerable scope for efficiency gains. Suggests that including a provision in the price control that specifies when an early price review could take place might also be beneficial.

• Designing Incentive Regulation for the Telecommunications Industry Cambridge, MA: MIT Press, 1996, Chapter 3. Sappington, David E.M., and Dennis L. Weisman

  Examines the features and economic effects of various forms of regulation, including rate of return regulation, earnings-sharing plans, revenue-sharing plans, and price cap regulation. Considers how to establish the length of time for a price cap plan.

Key Words

Incentive regulation, Information, Price cap regulation, Benchmarking, Revenue caps, Price basket controls, RPI-X, Price review, Yardstick regulation, Service quality, Rate base