Core References

• How to Determine the X in RPI - X Regulation: A User's Guide Telecommunications Policy 24(1): February 2000, pp. 63-68. Bernstein, Jeffrey I., and David E. M. Sappington

  Explains that price cap regulation is intended to replicate the discipline of competitive market forces. Competitive forces compel firms to realize productivity gains and to pass these gains on to their customers in the form of lower prices, after accounting for unavoidable increases in input prices. Therefore, if all industries in an economy were competitive, output prices in the economy would grow at a rate equal to the difference between the growth rate of input prices and the rate of productivity growth.

• 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 a regulator may choose to use a general consumer price index for familiarity purposes, although a producer price index may be a better proxy for prices faced by the firm. Further explains that the choice of a price index affects how one sets the X-factor. Using price inflation from the previous time period (preferably short in duration) in the RPI – X formula has the advantage of not forcing the company to forecast inflation and thus reduces correction terms.

Sectoral References

TELECOMMUNICATIONS

• ICT Regulation Toolkit Washington, D.C.: infoDev and the International Telecommunications Union, 2007, Module 2.

  State that frequently used criteria for choosing an inflation index include: a) reflectiveness of changes in the operator’s costs; b) availability from a credible, published, independent source; c) availability on a timely basis; d) understandability; e) stability; and f) consistency with total factor productivity of the economy. Further state that potentially useful inflation measures include Gross Domestic Product (GDP) indices and Consumer Price Index (CPI) or the Retail Price Index (RPI) indices.

TRANSPORTATION

• Africa Infrastructure Country Diagnostic: Stuck in Traffic: Urban Transport in Africa Working Paper number 44980, World Bank, Washington, D.C., 2008. World Bank and Sub-Saharan Africa Transportation Project

  Summarizes recent research on urban transport in 14 large African cities. Provides a comprehensive overview of the state of urban transport in Africa, with a view to drawing out the main challenges facing the sector and illustrating the different ways in which these have been addressed.

Key Words

Inflation, Price cap regulation, Quality Incentives, Productivity, RPI-X regulation, Price index