Endogenous Price Mechanisms, Capture and Accountability Rules: Theory and Evidence

This paper analyzes the constitutional determinants of cost reimbursement rules. In order to design the optimal incentive schemes, a possibly partisan planner will take into account the market cost structure, the institutional design of the supervision hierarchical structure and its technology. I employ electricity data from the U.S. electric power market to test the model’s predictions. The evidence shows that reforms from low powered incentive scheme (COS) to high powered one (PBR) are linked to high cost industries, the presence of elected supervisors, high inter-party platform distance and large (slim) majority when the reformer is Republican (Democratic). Moreover, there is some evidence in the data that performance-based regulation lowers regulated prices.


Issue Date:
2006
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/12197
Total Pages:
81
Series Statement:
PRCG Nota di Lavoro 106.2006




 Record created 2017-04-01, last modified 2017-08-23

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