Yardstick and incentive issues in UK electricity distribution price controls

Electricity distribution is a primary candidate for regulation since it is a natural monopoly whose costs it would be inefficient to duplicate in a competitive market. In the UK since privatisation of the electricity industry in 1990, this regulation has emphasised incentives for cost efficiency through the use of RPI‐X price capping applied to 14 regional distribution businesses. The paper examines the issues that have arisen in implementation, including the practice of bench‐marking the operating and capital expenditures of different companies. It analyses how the price set at the beginning of each review period depends on the determination of cost yardsticks, the weighted average cost of capital and the regulatory asset base of the companies. The analytical model is used to evaluate Ofgem's 1999 Distribution Price Control Review and compares it with other European distribution price regulations.     

The 1971–1974 controls program and the price level: An econometric post-mortem

This paper provides new empirical evidence on the effects of the Nixon wage-price controls on the price level. The major new wrinkle is that the controls are created as a quantitative (rather than just a qualitative) phenomenon through the use of a specially-constructed series indicating the fraction of the economy that was controlled. According to the estimates, by February 1974 controls had lowered the non-food non-energy price level by 3–4 percent. After that point, and especially after controls ended in April 1974, a period of rapid ‘catch up’ inflation eroded the gains that had been achieved, leaving the price level from zero to 2 percent below what it would have been in the absence of controls. The dismantling of controls can thus account for most the burst of ‘double digit’ inflation in non-food and non-energy prices during 1974.     

International financial integration through the law of one price: The role of liquidity and capital controls

This paper takes advantage of the fact that some stocks trade both in domestic and international markets to characterize the degree of international financial integration. The paper argues that the cross-market premium (the ratio between the domestic and the international market price of cross-listed stocks) provides a valuable measure of international financial integration and the effectiveness of capital controls. Using autoregressive (AR) models to estimate convergence speeds and non-linear threshold autoregressive (TAR) models to identify non-arbitrage bands, the paper shows that price deviations across markets are rapidly arbitraged away and bands are narrow, particularly so for liquid stocks. The paper also shows that regulations on cross-border capital flows effectively segment domestic markets. As expected, the effects of both types of capital controls are asymmetric but in the opposite direction: controls on outflows induce positive premia, while controls on inflows generate negative premia. Both vary with the intensity of capital controls.     

Direct price controls as a source of instability in the interest rate/inflation rate relationship

We hypothesize that an efficient capital market is more concerned with effective inflation rates (which investors experience) than ‘official’ ones (which econometricians observe), and that direct consumer goods price controls are likely to result in disparity between the two. Consequently, direct price controls are also likely to affect the interest/measured inflation rate relationship. We ropose a dummy variable approach which enables us to explore empirically the effects of such controls on the interest/inflation rate relationship in the context of Dwyer's (1981) model. Using Euro rates and inflation rates of the respective countries we explore the impact of the control programmes imposed in the 1970's by governments of the united States, Canada and France. France.     

Sectoral price data and models of price setting

In the median sector, 100 percent of the long-run response of the sectoral price index to a sector-specific shock occurs in the month of the shock. The standard Calvo model and the standard sticky-information model can match this finding only under extreme assumptions concerning the profit-maximizing price. The rational-inattention model of Ma?kowiak and Wiederholt [2009a. Optimal sticky prices under rational inattention. American Economic Review 99, 769–803] can match this finding without an extreme assumption concerning the profit-maximizing price. Furthermore, there is little variation across sectors in the speed of response of sectoral price indexes to sector-specific shocks. The rational-inattention model matches this finding, while the Calvo model predicts too much cross-sectional variation.     

The knowledge of price and the price of knowledge

Social science is enmeshed from the outset in an interaction between individual agents, collective action and analytical response. The desire to implement policy and create a preferred outcome provides further complication. There is a fundamental confusion between knowledge in the system and knowledge about it. Classical market analysis divorces the two; in practice agents use both. Moreover, they use their knowledge to change the system. A given set of rules may therefore produce a variety of outcomes. Unless this phenomenon is better understood and analysed, policy-making will continue to produce unexpected and indeed undesired outcomes. Complex systems approaches offer a way forward into these issues which is beginning to bear fruit in thinking clearly about how systems can and should be analysed.     

Asset price volatility,price markups,and macroeconomic fluctuations

A variant of the neoclassical growth model is considered to study the role of innovation, lags in technology adoption, total factor productivity TFP, and price markups as main determinants of asset price volatility. The model confers a prominent role to price markups as opposed to other macroeconomic sources of uncertainty. In the data, price markups are highly correlated with stock market values, whereas other financial measures of profitability exhibit much less volatility and are weakly correlated with stock market values.     

A Markov‐perfect equilibrium model of the impacts of price controls on the performance of the pharmaceutical industry

I introduce a computable dynamic equilibrium model of the pharmaceutical industry, parameterize it using industry facts, and use it to predict what happens if the United States adopts price controls or one or more non‐U.S. countries abandon their controls. The model generates implications for firm value, research and development (R&D), the flow of new drugs, and consumer welfare. I highlight the sensitivity of the results to alternative assumptions about R&D costs, market size, technological opportunities, consumer heterogeneity, the extent to which choices internalize prices, barriers to entry in R&D, the extent to which R&D outcomes are correlated, and the nature of the controls.     

Dividends and price momentum

Stock market evidence shows that momentum profits are lower among dividend-paying firms than their non-paying counterparts due to differences in losers’ returns. Additionally, dividend maintenance is associated with higher returns for losers but not for winners. Finally, buying winners that increased their dividends and shorting losers that decreased their dividends enhances momentum profits. Consistent with the evidence, the behavioral models suggest that investors underreact to the losers’ positive dividend-maintaining news, reducing their return momentum and shrinking the payers’ momentum profit. Also, underreaction to positive news from winners’ dividend-increasing announcements as well as to negative news from losers’ dividend-decreasing announcements explains the higher momentum profits for strategies based on these stocks. The results do not appear consistent with risk-based explanations.     

Earnings and price momentum

This paper examines whether earnings momentum and price momentum are related. Both in time-series as well as in cross-sectional asset pricing tests, we find that price momentum is captured by the systematic component of earnings momentum. The predictive power of past returns is subsumed by a zero-investment portfolio that is long on stocks with high earnings surprises and short on stocks with low earnings surprises. Further, returns to the earnings-based zero-investment portfolio are significantly related to future macroeconomic activities, including growth in GDP, industrial production, consumption, labor income, inflation, and T-bill returns.     

Accruals and price crashes

I investigate the relation between accruals and firm-level price crashes, representing extreme price decreases in weekly returns. I find that high accruals predict a higher price crash probability than low accruals. This finding can be explained by managers’ use of income-increasing accrual estimates to hoard bad news. Once accumulated bad news crosses a tipping point, it is released all at once and results in a price crash. Consistent with this explanation, I find the observed relation to be the strongest for operating assets (the least reliable accrual components). Cross-sectional analyses further support the bad news hoarding explanation.     

Stock price synchronicity and liquidity

We argue and provide evidence that stock price synchronicity affects stock liquidity. Under the relative synchronicity hypothesis, higher return co-movement (i.e., higher systematic volatility relative to total volatility) improves liquidity. Under the absolute synchronicity hypothesis, stocks with higher systematic volatility or beta are more liquid. Our results support both hypotheses. We find all three illiquidity measures (effective proportional bid-ask spread, price impact measure, and Amihud's illiquidity measure) are negatively related to stock return co-movement and systematic volatility. Our analysis also shows that larger industry-wide component in returns improves liquidity. We find that improvement in liquidity following additions to the S&P 500 Index is related to the stock's increase in return co-movement.     

殳价操纵与反操纵监管

监管应该有能力发现操纵行为，并建立多样性的操纵行为监测手段，实施有效的反操纵监管(anti-manipulation regulation)。对操纵行为泛滥的中国股市而言，打击股价操纵行为更具有特嗣的迫切性和制度建设意义。     

Resale price maintenance and collusion

The article revisits the conventional wisdom according to which vertical restrictions on retail prices help upstream firms to collude. We analyze the scope for collusion with and without resale price maintenance (RPM) when retailers observe local shocks on demand or retail costs. In the absence of RPM, retail prices react to retailers' information, and deviations from collusive behavior are thus difficult to detect. By eliminating retail price flexibility, RPM facilitates the detection of deviations but reduces profits and thus increases the short‐run gains from a deviation. Overall, RPM can facilitate collusion and reduce total welfare when firms adopt it.     

Trading costs and price discovery

The price discovery roles of a set of related markets or securities have been investigated in many different settings where trading costs effect is often commingled with other trading arrangement factors. In Hong Kong, regular futures and mini futures contracts as well as their underlying spot asset are all traded on a same electronic trading platform. The trading arrangements thus provide us with a unique setting where we can isolate the impacts of transaction costs on price discovery. Using Hasbrouck’s (J Finance 50:1175–1199, 1995) information share approach, it is found that in Hong Kong, the regular futures contracts market plays a dominant role in price discovery while the mini futures and cash index markets play minor roles. The results in this paper provide an unequivocal support to the trading costs hypothesis.     

Market share and price rigidity

Survey evidence shows that the main reason why firms keep prices stable is that they are concerned about losing customers or market share. We construct a general equilibrium model in which firms care about the size of their customer base. Firms and customers form long-term relationships because consumers incur costs to switch sellers. In an environment with sectoral productivity shocks, we show that cost pass-through is a non-monotonic function of the size of switching costs. Specifically, prices tend to become more stable as the fraction of repeat customers increases and the elasticity of the customer base falls.