Rate-of-return regulation
- Rate-of-return regulation
Rate-of-return regulation is a system for setting the prices charged by regulated monopolies. The central idea is that monopoly firms should be required to charge the price that would prevail in a competitive market, which is equal to efficient costs of production plus a market-determined rate of return on capital.
Rate-of-return regulation has been criticized because it encourages cost-padding, and because, if the allowable rate is set too high, it encourages the adoption of an inefficiently high capital-labor ratio. This is called the Averch-Johnson effect.
Rate-of-return regulation was dominant in the US for many years. However, as other countries have introduced monopoly regulation, often following the privatization of nationalized industries, they have mostly adopted other systems, such as price-cap regulation and revenue-cap regulation, which are seen as having better incentive properties. However, it has been argued that all systems of regulation converge to rate-of-return regulation in the long run.
Braeutigam, Ronald E. & John C. Panzar, "Effects of the Change from Rate-of-Return to Price-Cap Regulation," American Economic Review, May 1993, pp. 191-198.
Wikimedia Foundation.
2010.
Look at other dictionaries:
Rate Of Return Regulation — A form of price setting regulation where governments determine the fair price which is allowed to be charged by a monopoly. Rate of return regulation is meant to protect customers from being charged higher prices due to the monopoly s power,… … Investment dictionary
Regulation AB — was introduced in 2004 by the Securities and Exchanges Commission to regulate registration, offering and reporting of public deals of Asset Backed Securities Background Regulation AB is a comprehensive set of new rules and amendments that address … Wikipedia
Price-cap regulation — is a form of regulation designed in the 1980s by UK Treasury economist Stephen Littlechild, which has been applied to all of the privatized British network utilities. It is contrasted with rate of return regulation, in which utilities are… … Wikipedia
Revenue-cap regulation — regulation is a system for setting the prices charged by regulated monopolies. It is contrasted with rate of return regulation, in which utilities are permitted a set rate of return on capital, and with price cap regulation where total revenue is … Wikipedia
Revenue Cap Regulation — A form of economic regulation generally applied to utility companies. Revenue cap regulation seeks to limit the amount of total revenue received by a company operating which holds monopoly status in the industry. Like price cap regulation,… … Investment dictionary
Price Cap Regulation — A form of economic regulation generally specific to the utility industry in the United Kingdom. Price cap regulation sets a cap on the price that the utility provider can charge. The cap is set according to several economic factors, such as the… … Investment dictionary
Interest rate — Finance Financial markets Bond market … Wikipedia
confiscatory order or regulation — A rate order or regulation fixing the rate or rates of a common carrier or public utility so low that the carrier or utility is deprived of a fair return on its investment, or providing rates so low that they tend toward depriving the carrier or… … Ballentine's law dictionary
reasonable rate — A rate charged by a carrier in such amount as to provide a reasonable compensation for its services and no more. 13 Am J2d Car § 106. A rate charged by a public service company which is not oppressive to those served or confiscatory from the… … Ballentine's law dictionary
Ontario Deposit Return Program — The Ontario Deposit Return Program (ODRP), also simply known as Bag it Back, is a regulation of the province of Ontario, Canada in 2007. Its purpose is to divert recyclable materials from landfill or low quality recycling uses by charging a fee… … Wikipedia
