Endogenous Regulatory Constraints and the Emergence of Hybrid Regulation

Models of public utility regulation are often framed, alternatively, as rateof-return or price-cap regulation. In practice, however, regulators have increasingly adopted a variety of hybrid regulatory constraints that embody elements of both these, and other, regulatory forms. In this paper, we draw...

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Bibliographic Details
Published in:Review of industrial organization 2009-11, Vol.35 (3), p.233-255
Main Authors: Blank, Larry, Mayo, John W.
Format: Article
Language:English
Subjects:
Commercial regulation
Economic analysis
Economic efficiency
Economic models
Economic profit
Economic regulation
Economic theory
Economics
Economics and Finance
Federal regulation
Industrial Organization
Industrial regulation
Interest groups
Investment return rates
Microeconomics
Political regulation
Politics
Price regulation
Profit sharing
Profit sharing plans
Public utilities
Regulation
Regulatory theory
Revisionism
Studies
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Summary:Models of public utility regulation are often framed, alternatively, as rateof-return or price-cap regulation. In practice, however, regulators have increasingly adopted a variety of hybrid regulatory constraints that embody elements of both these, and other, regulatory forms. In this paper, we draw upon elements of both the positive economic theory of regulation and standard efficiency-based economic analysis of regulation to develop a model that endogenously yields hybrid regulatory constraints as a regulatory optimum. In this context, the paper further demonstrates that a commonly observed side payment-profit sharing-enhances regulator welfare. The results provide a plausible basis for understanding the pattern of modern regulatory constraints.
ISSN:0889-938X
1573-7160
DOI:10.1007/s11151-009-9227-y