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Quality-Adjusted Laspeyres Price Caps: A Graphical Analysis

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Abstract

The strong incentive to reduce costs under price cap regulation may create incentives for a regulated firm to reduce delivered service quality levels. Corrective measures, such as service quality standards or a service quality adjustment factor in the price cap formula may mitigate against this tendency. In this paper, we explore the properties of a regulatory scheme in which a Laspeyres index of prices and qualities is employed by the regulator.

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Authors and Affiliations

  1. Department of Economics and Legal Studies in Business, Spears School of Business, Oklahoma State University, Stillwater, OL, 74078, U.S.A.

    Kevin M. Currier

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  1. Kevin M. Currier
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Correspondence to Kevin M. Currier.

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Currier, K.M. Quality-Adjusted Laspeyres Price Caps: A Graphical Analysis. Atl Econ J 34, 481–490 (2006). https://doi.org/10.1007/s11293-006-9041-y

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  • DOI: https://doi.org/10.1007/s11293-006-9041-y

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