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

48 Pages Posted: 18 Jul 2005

See all articles by David Hawdon

David Hawdon

University of Surrey - Department of Economics

Lester C. Hunt

University of Surrey - Department of Economics

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: February 2005

Abstract

This paper examines optimal price (i.e., 'sliding scale') regulation of a monopoly when efficiency and managerial effort are not observed. We show how to operationalize this model of incentive regulation and use actual data from electricity distribution in England and Wales to make welfare comparisons of sliding scale regulation with a 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 price cap regime.

Keywords: Sliding scale, regulation, electricity distribution

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 (February 2005). CEPR Discussion Paper No. 4934. Available at SSRN: https://ssrn.com/abstract=763565

David Hawdon

University of Surrey - Department of Economics ( email )

Guildford
Surrey GU2 7XH
United Kingdom

Lester C. Hunt

University of Surrey - Department of Economics ( email )

Guildford
Surrey GU2 7XH
United Kingdom

Paul L. Levine (Contact Author)

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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