Price cap regulation and the ratchet effect: a generalized index approach |
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Authors: | Anna Bottasso Maurizio Conti |
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Institution: | 1.Department of Economics,Università di Genova,Genova,Italy |
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Abstract: | In this study we estimate a variable cost function on a panel of English and Welsh Water and Sewerage companies, observed
over two full regulatory periods (1995–2004). The main aim of the paper is to investigate the presence of a ratchet effect
in the cost cutting activity associated with the price cap regulatory regime. By applying the Generalized Index of Technical
Change approach suggested by Baltagi and Griffin (J Polit Econ 96(1):20–41, (1988)), we provide some empirical evidence consistent with the existence of regulatory cycles. In particular, firms’ cost cutting
activity tends to increase in the early phase of the regulatory cycle, while it weakens as the price review approaches. D24,
L51, L95. |
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Keywords: | |
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