Abstract
There has been considerable discussion of price-cap regulation as an alternative to traditional rate-of-return regulation. This paper examines some of the practical pitfalls of price-cap regulation. First, a model of a terminating price cap is developed. Next, this model is used to propose some problems of implementation. These problems are evaluated in the context of a case study of the Tucson Electric Power Company, which faced a type of price cap for several years in the 1980s. Extensions of the specific case to more general lessons about price-cap regulation are considered.
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Isaac, R.M. Price cap regulation: A case study of some pitfalls of implementation. J Regul Econ 3, 193–210 (1991). https://doi.org/10.1007/BF00140958
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DOI: https://doi.org/10.1007/BF00140958