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Setting the X Factor in Price Cap Regulation Plans / Jeffrey I. Bernstein, David E. M. Sappington.
- Format:
- Book
- Author/Creator:
- Bernstein, Jeffrey I.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w6622.
- NBER working paper series no. w6622
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 1998.
- Summary:
- Despite the popularity of price cap regulation in practice, the economic literature provides relatively little guidance on how to determine the X factor, which is the rate at which inflation -adjusted output prices must fall under price cap plans. We review the standard principles that inform the choice of the X factor, and then consider important extensions. We analyze appropriate modifications of the X factor: (1) when only a subset of the firm's products are subject to price cap regulation, and when product-specific costs and productivity cannot be measured; (2) when the pricing decisions of the regulated firm affect the economy-wide inflation rate; and (3) in the presence of structural changes in the industry, such as a strengthening of competitive forces.
- Notes:
- Print version record
- June 1998.
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