Regulatory instruments and investment behaviour

Regulatory instruments have long been understood to have a powerful effect on investment, and part of the motivation for introducing higher powered regulatory regimes and contracts was to reduce incentives for inefficiency and over-investment (gold plating) inherent in cost-plus regulatory schemes....

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Bibliographic Details
Published in:Utilities policy 2004-12, Vol.12 (4), p.211-219
Main Authors: Burns, Phil, Riechmann, Christoph
Format: Article
Language:English
Subjects:
Electricity
Gas
Networks
Public infrastructure
Public investment
Railways
Regulation
Utilities
Utility regulation
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Summary:Regulatory instruments have long been understood to have a powerful effect on investment, and part of the motivation for introducing higher powered regulatory regimes and contracts was to reduce incentives for inefficiency and over-investment (gold plating) inherent in cost-plus regulatory schemes. In practice, the mix of incentives and the institutional framework that make up a higher powered regulatory regime can also lead to unintended distortions on investment behaviour. In this paper, we examine the key drivers of investment behaviour, and provide some examples of how these drivers have affected behaviour in practice. We conclude with a set of key areas and inter-relationships that are at the core of a regulatory settlement, and therefore need to be designed appropriately to drive efficient behaviour.
ISSN:0957-1787
1878-4356
DOI:10.1016/j.jup.2004.07.002