Incentive regulation and the regulation of incentives
This thesis explores the regulatory problem of incentives and the question of how to create a regulatory framework that most nearly aligns the firm's private interests with the public good. The main themes are: (1) an efficiency loss is inherent in the regulatory relationship, as long as the regulator knows less about the firm's operations than the firm itself; and (2) regulation itself is an incentive mechanism, so that the regulator can choose how to motivate the firm but now whether to do so. An analytical model is used to show the tradeoff between inducing efficient production and efficient pricing. The thesis surveys and analyzes incentive regulation mechanisms adopted by state utility commissions, using a Washington state plan as a case study. A natural extension of incentive regulation is discussed, in which the firm's reward depends on the total gain in consumer surplus rather than just the reduction in expenditures. The ability of the regulator to commit to future actions is central to incentive regulation, as well as many other aspects of regulation.
- Research Organization:
- Harvard Univ., Boston, MA (United States)
- OSTI ID:
- 5505871
- Country of Publication:
- United States
- Language:
- English
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