Optimal Sliding Scale Regulation: An Application to Regional Electricity Distribution in England and Wales

Posted: 24 Jun 2008

See all articles by David Hawdon

David Hawdon

University of Surrey - Department of Economics

Lester C. Hunt

affiliation not provided to SSRN

Paul Levine

School of Economics, University of Surrey

Neil Rickman

University of Surrey - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 2007

Abstract

This paper examines optimal price (i.e. ‘sliding scale’) regulation of a monopoly when productivity and managerial effort are not observed. We show generally how to operationalize this model of incentive regulation and use actual data from electricity distribution in England and Wales to estimate key parameters and make welfare comparisons of sliding scale regulation with a stylized price cap regime and the First-Best (the full information case). Our method enables us to quantify technical uncertainty as faced by the electricity regulator in the 1990s and shows that there are significant welfare gains from a sliding scale relative to the stylized price cap regime.

Keywords: JEL classification: L51

Suggested Citation

Hawdon, David and Hunt, Lester C. and Levine, Paul L. and Rickman, Neil, Optimal Sliding Scale Regulation: An Application to Regional Electricity Distribution in England and Wales (July 2007). Oxford Economic Papers, Vol. 59, Issue 3, pp. 458-485, 2007. Available at SSRN: https://ssrn.com/abstract=1150591 or http://dx.doi.org/10.1093/oep/gpm008

David Hawdon (Contact Author)

University of Surrey - Department of Economics ( email )

Guildford
Surrey GU2 7XH
United Kingdom

Lester C. Hunt

affiliation not provided to SSRN

Paul L. Levine

School of Economics, University of Surrey ( email )

Guildford
Surrey GU2 7XH
United Kingdom
+44 1483 259 380 Ext. 2773 (Phone)
+44 1483 259 548 (Fax)

Neil Rickman

University of Surrey - Department of Economics ( email )

Guildford
Surrey GU2 7XH
United Kingdom
+44 1483 689 923 (Phone)
+44 1483 689 548 (Fax)

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