Abstract
The first half of this paper overviews traditional methods of ratemaking—embedded and marginal cost pricing—and four recent alternatives—automatic rate adjustments, profit-sharing, tariff menus, and the Vogelsang-Finsinger convergence mechanism—that have come to challenge them. We develop a list of nine desirable properties that are suitable to gauge any regulatory mechanism. In the second half of the paper, we explore in greater detail two recent incentive plans—the FCC's price caps approach and a mechanism that the three authors proposed in a FERC document. Based on the nine properties, these two mechanisms are compared.
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Brown, L., Einhorn, M. & Vogelsang, I. Toward improved and practical incentive regulation. J Regul Econ 3, 323–338 (1991). https://doi.org/10.1007/BF00138472
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DOI: https://doi.org/10.1007/BF00138472