Incentive Regulation of Prices When Costs are Sunk

Evans, Lewis; Guthrie, Graeme

doi:10.1007/s11149-006-7398-0

Cited by 26 publications

(23 citation statements)

References 26 publications

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“…Under an incentive regulation, for instance, the enlargement of the period between reviews can promote investment in SGs by reducing the risk of regulatory opportunism (see also Evans and Guthrie, 2006;Gilbert and Newbery, 1994).…”

Section: Discussion and Policy Implicationsmentioning

confidence: 99%

“…automation, remote control, dynamic pricing -will have an impact that is hard to forecast. In addition, the majority of the investments are irreversible, increasing the risk of slow penetration and low capacity utilization in initial years (Evans and Guthrie, 2006). Therefore, the uncertainty on the potential benefits and costs of these innovations calls for some explicit support from the regulator (Cossent et al, 2013;Frias et al, 2009 show that the scheme was unable to increase investment in such assets and reveal the difficulty of balancing more stringent efficiency requirements in order to incentivize network investments with practical obstacles faced when implementing SGs.…”

Section: Why Should Regulation Evolve?mentioning

confidence: 99%

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The Impact of Regulation on a Firm’s Incentives to Invest in Emergent Smart Grid Technologies

Costa¹,

Bento²,

Marques³

2017

The Energy Journal

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This paper analyzes the implementation of new technologies in network industries through the development of a suitable regulatory scheme. The analysis focuses on Smart Grid (SG) technologies which, among others benefits, could save operational costs and reduce the need for further conventional investments in the grid. In spite of the benefits that may result from their implementation, the adoption of SGs by network operators can be hampered by the uncertainties surrounding actual performances. A decision model has been developed to assess the firms' incentives to invest in "smart" technologies under different regulatory schemes. The model also enables testing the impact of uncertainties on the reduction of operational costs, and of conventional investments. Under certain circumstances, it may be justified to support the development and early deployment of emerging innovations that have a high potential to ameliorate the efficiency of the electricity system, but whose adoption face many uncertainties.

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Section: Discussion and Policy Implicationsmentioning

confidence: 99%

Section: Why Should Regulation Evolve?mentioning

confidence: 99%

The Impact of Regulation on a Firm’s Incentives to Invest in Emergent Smart Grid Technologies

Costa¹,

Bento²,

Marques³

2017

The Energy Journal

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“…In particular, adjustments are made for lumpiness (allowing for unused capacity) and real options lost through sunk investments (EVANS and GUTHRIE 2006). The advantage of such adjustments is that they are methodologically clean and therefore not discretionary.…”

Section: Softer Regulationmentioning

confidence: 99%

The Endgame of Telecommunications Policy? A Survey

Vogelsang

2013

Review of Economics

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Telecommunications policy has come a long way from regulation of vertically integrated monopolies to the current state of competition. As competition becomes selfsustainable, will telecommunications policy in the form of industry-specific regulation go away or, if not, what form will it take? The economics literature suggests that the regulatory efficiency frontier is shifted by new technological and market developments, such as convergence of networks, fixed-mobile substitution (and integration) and next generation access networks. The frontier is also affected by the existing capital stock and other physical and institutional characteristics of a country. The insights from a review of the theoretical and empirical literature are applied to five policy areas. They are: (1) termination monopoly; (2) local bottleneck access; (3) net neutrality; (4) spectrum management; and (5) universal service. While in some of them, deregulation and a move to competition policy will soon be the efficient state of the art, regulation will remain efficient in others for some time. Deregulation will likely become efficient for one-way access and universal service, with the exception of some universal service policies in remote areas and for the poor. Termination will move to bill and keep with a duty to interconnect. In addition, some (more symmetric) regulation should persist for net neutrality in the form of transparency requirements, (quasi-) common carrier obligations and minimum quality standards. Also, spectrum management, while moving towards full-blown ownership rights, will continue to see regulators providing zoning and other services, particularly for unlicensed spectrum. All these assessments are premised on the success of making additional spectrum as the key resource available. They are also premised on the absence of a killer technology like P2P FTTH that potentially dominates all other technologies. What determines the endgame in telecommunications regulation? Although technical and market developments will dominantly shape the regulatory efficiency frontier, institutional and political economy factors have an additional and mostly slowing effect on policy changes. (JEL: L43; L86; L96; L98.

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“…Beside this, demand for network services is always uncertain to a certain extent because of general economic conditions and potential novelties. All these elements are now included in recent works about regulatory tools (Evans and Guthrie, 2006). This economic literature nevertheless makes still stringent explicit or implicit assumptions.…”

Section: The Actual Endowment Of Regulatorsmentioning

confidence: 99%

Implementing Incentive Regulation and Regulatory Alignment with Resource Bounded Regulators

Glachant

Khalfallah²,

Pérez³

et al. 2013

Competition and Regulation in Network Industries

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. Implementing incentive regulation through an alignment with resource bounded regulators. Competition and Regulation in Network Industries, SAGE Publications, 2013, 14 (3), pp.265-291. ROBERT SCHUMAN CENTRE FOR ADVANCED STUDIES Robert Schuman Centre for Advanced StudiesThe Robert Schuman Centre for Advanced Studies (RSCAS), created in 1992 and directed by Stefano Bartolini since September 2006, aims to develop inter-disciplinary and comparative research and to promote work on the major issues facing the process of integration and European society.The Centre is home to a large post-doctoral programme and hosts major research programmes and projects, and a range of working groups and ad hoc initiatives. The research agenda is organised around a set of core themes and is continuously evolving, reflecting the changing agenda of European integration and the expanding membership of the European Union. Florence School of RegulationThe Florence School of Regulation (FSR) is a partnership between the Robert Schuman Centre for Advanced Studies (RSCAS) at the European University Institute (EUI), the Council of the European Energy Regulators (CEER) and the Independent Regulators Group (IRG). Moreover, as part of the EUI, the FSR works closely with the European Commission.The objectives of the FSR are to promote informed discussions on key policy issues, through workshops and seminars, to provide state-of-the-art training for practitioners (from European Commission, National Regulators and private companies), to produce analytical and empirical researches about regulated sectors, to network, and to exchange documents and ideas.At present, its scope is focused on the regulation of Energy (electricity and gas markets), of Communications & Media, and of Transport.This series of working papers aims at disseminating the work of scholars and practitioners on current regulatory issues. For further information AbstractIt is puzzling today to explain both the diversity and the rationale of regulators' practice vis-à-vis network monopolies. We argue that two fundamental characteristics should be considered when defining the most appropriate regulatory tools. First, it is the bounded endowment of regulators set by governments and legislators which determines their abilities (staff, budget, administrative powers) to implement any of the regulatory tools. Ranked from the easiest to the most demanding to implement, these various tools are: a-cost plus, b-price/revenue cap, c-output or performance-based regulation, d-menu of contracts and e-yardstick competition. Second, the regulators also have to take into account that the network monopolies perform multiple tasks with heterogeneous regulatory characteristics (in terms of controllability, ex ante predictability and ex post observability). These characteristics of tasks determine what type of regulatory tool is more likely to better regulate each task. The regulatory tools then perform well only when they are implemented for tasks that are controllable and predictabl...

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Incentive Regulation of Prices When Costs are Sunk

Cited by 26 publications

References 26 publications

The Impact of Regulation on a Firm’s Incentives to Invest in Emergent Smart Grid Technologies

The Impact of Regulation on a Firm’s Incentives to Invest in Emergent Smart Grid Technologies

The Endgame of Telecommunications Policy? A Survey

Implementing Incentive Regulation and Regulatory Alignment with Resource Bounded Regulators

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