A non-Bayesian Piecewise Linear Approximation Adjustment Process for Incentive Regulation

Journal article, 2007

The chord-approximation adjustment process for incentive regulation of public utilities suggested by Vogelsang (1988) induces the regulated firm to engage in strategic behaviour instead of converging to marginal cost pricing. In this paper, we show how a non-Bayesian piecewise linear approximation of demand can eliminate this problem.