Original Article

Journal of Regulatory Economics

, Volume 42, Issue 2, pp 115-134

Designing optimal gain sharing plans to promote energy conservation

  • Leon Yang ChuAffiliated withDepartment of Information and Operations Management, Marshall School of Business, University of Southern California
  • , David E. M. SappingtonAffiliated withDepartment of Economics, Warrington College of Business, University of Florida Email author 

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Abstract

We analyze the optimal design of gain sharing plans to promote energy conservation. We show how the optimal plan varies as industry conditions and the regulator’s information change. We demonstrate the importance of allowing the energy supplier a choice among plans, some of which offer the prospect of both pronounced financial gains for superior performance and substantial losses for inferior performance.

Keywords

Energy conservation Gain sharing Asymmetric information

JEL Classification

D82 L51 Q38