Price Regulation in Australia: How Consistent Has It Been?

We assemble a database consisting of 52 regulatory decisions made by seven different regulators across five different industries. We examine how the proportion of firms' revenue requirements that were disallowed by the regulator vary by regulator, industry and time. Despite the differences in the implementation of price regulation across industries and across jurisdictions in Australia, outcomes are surprisingly consistent. For example, we show that it is not possible to reject the hypothesis that the regulatory outcomes in South Australia, New South Wales, the Australian Capital Territory and Victoria are similar despite the different regulatory approaches undertaken in these jurisdictions.     

Returns to Skills and the College Premium

A substantial literature documents the evolution of the college premium in the U.S. labor market over the last 40 years or so. There are at least three different interpretations of this fact: (i) shifts in the relative supply of and demand for college versus high school labor, (ii) shifts in the relative supply of and demand for skills in the college versus high school sector, and (iii) composition effects. We investigate how each of these components contributes to the dynamics of the college premium and find that all three play a role, but the increase in the college premium is primarily driven by the first component. We also find that during the 1980s, the college premium for high school workers diverged from the college premium for college workers and a substantial fraction of the gap that opens up is primarily due to the increase in the returns to cognitive skills.     

TESTING REGULATORY CONSISTENCY

We undertake an analysis of regulatory consistency using a database of publicly available regulatory decisions in Australia. We propose a simple exploratory model which allows us to test for regulatory consistency across jurisdictions and industries without detailed knowledge of the regulatory process. We compare two measures using our approach—the weighted average cost of capital (WACC) and the proportion of firms' revenue requirement claims disallowed by the regulator. Our comparison suggests that the WACC is a very poor measure of regulatory consistency. Moreover, our empirical results may be interpreted as indicating that a range of measures ought to be considered when assessing regulatory consistency. Our results also provide an empirical foundation for theoretical modeling of regulatory processes. (JEL L51)