Regulation and Contracts for Utility Services: Substitutes or Complements?

London Business School Working Paper No. 54

35 Pages Posted: 29 Jul 2003

See all articles by Jon Stern

Jon Stern

City, University of London - Centre for Competition and Regulatory Policy - Department of Economics

Date Written: May 2003

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 both legal aspects and the experience of the UK in the reliance on franchise contracts in the railway and electricity industries and in other utility service industries. We conjecture that regulation and contracts are complements for network industries rather than substitutes. The existence of 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.

Suggested Citation

Stern, Jon, Regulation and Contracts for Utility Services: Substitutes or Complements? (May 2003). London Business School Working Paper No. 54. Available at SSRN: https://ssrn.com/abstract=408461 or http://dx.doi.org/10.2139/ssrn.408461

Jon Stern (Contact Author)

City, University of London - Centre for Competition and Regulatory Policy - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
220
Abstract Views
1,114
rank
146,045
PlumX Metrics