Price caps, while widely touted, are less commonly implemented. Most incentive schemes involve profit sharing and are thus variants of sliding-scale regulation. I show that, relative to price caps, some degree of profit sharing always increases expected welfare. Numerical simulations show that...

We examine the applicability of price-cap mechanisms to the regulation of gas distribution company rates for gas supply and transportation services. Although distribution companies will continue to be regulated for the foreseeable future, we argue that a hybrid of price and profit regulation of...

Regulation is often thought to discourage innovation. This problem is not evidenced by electric utility behavior up through the mid-1970s, during which time utilities adopted various new generation technologies. However, retrospective "prudence" reviews, common since the 1980s, may discourage...

Since the emergence of a spot market in natural gas in 1984, state regulators have been concerned that regulated utilities would fail to choose between contracts and spot purchases in a way that minimizes costs. Grounds for this concern are shown, under two alternative rate structures, in a...

We present a model of the regulatory "contract" that focuses on the mutual investment of buyer and seller and recognizes the cost of contractual renegotiation and the importance of breach remedies when contracts are incomplete. We model renegotiation as a litigation game played before a...