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Reflections on Incentive Regulation

The Review of Network Economics

Vol. 2, Issue 4 - December 2003, pp 289-315

  Stephen Littlechild
Judge Institute of Management Studies, University of Cambridge

E-mail: [email protected]

  This paper reviews in turn the papers in this Symposium on incentive regulation. It adduces the UK experience with incentive regulation, particularly in the electricity sector, to evaluate, amongst other things, the reasons for development and adoption of this approach, the determinants of setting X, and the case for more advanced metering. It suggests, among other things, that price caps can be designed to facilitate the transition to retail competition, that a rise in complaints might be explicable in part by factors other than quality of service, that TELRIC pricing has yet to acknowledge fully the implications of time and lack of knowledge, and that a failure to recognise the impact of competition on quality and variety of service could underestimate the benefits of competition in supply. It recognises similarities and some differences between the UK experience and the accounts of regulators that have introduced incentive regulation in the US.

Keywords: incentive regulation, electricity, price-cap, United Kingdom

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