Regulatory Instruments and Their Effects on Investment Behavior

32 Pages Posted: 20 Apr 2016

Date Written: April 22, 2004


Regulatory instruments have long been understood to have a powerful effect on investment, and part of the motivation for introducing higher-powered regulatory regimes and contracts was to reduce incentives for inefficiency and over-investment (gold plating) inherent in cost-plus regulatory schemes. In practice, the mix of incentives and the institutional framework that make up a higher-powered regulatory regime can also lead to unintended distortions on investment behavior. In this paper Burns and Riechmann examine the key drivers of investment behavior and provide some examples of how these drivers have affected investment in practice. They conclude with a set of key areas and interrelationships that are at the core of a regulatory settlement, and therefore need to be designed appropriately to drive efficient investment behavior.

This paper - a product of the Finance and Private Sector Development Division, World Bank Institute - is part of a larger effort in the institute to promote good practice in infrastructure regulation.

Suggested Citation

Burns, Philip and Riechmann, Christoph, Regulatory Instruments and Their Effects on Investment Behavior (April 22, 2004). Available at SSRN:

Philip Burns (Contact Author)

Frontier Economics Ltd ( email )

MidCity Place
71 High Holborn
London, WC1V 6DA
United Kingdom

Christoph Riechmann

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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