Hybrid Revenue Caps and Incentive Regulation
Journal article, 2006

This paper analyzes the incentive effects of a hybrid revenue cap on a regulated monopolistic firm using non-discriminatory two-part pricing. It is shown that the fixed and the variable part of the cap have different meanings in terms of regulation - the fixed part of a hybrid revenue cap should be used to control the profit level of the regulated firm while the variable part should be used to control the social efficiency level. Since detailed information about the firm’s cost function is required to determine the revenue cap parameters, the overall conclusion is that revenue caps are a rather bad idea in the area of incentive regulation.

Revenue caps

Incentive regulation

Author

Björn Lantz

University of Gothenburg

Energy Economics

0140-9883 (ISSN) 1873-6181 (eISSN)

Vol. 30 3 688-695

Subject Categories

Economics and Business

DOI

10.1016/j.eneco.2006.09.003

More information

Created

10/10/2017