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The Natural Resources TrapPrivate Investment without Public Commitment$
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William Hogan and Federico Sturzenegger

Print publication date: 2010

Print ISBN-13: 9780262013796

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262013796.001.0001

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Credibility, Commitment, and Regulation: Ex Ante Price Caps and Ex Post Interventions

Credibility, Commitment, and Regulation: Ex Ante Price Caps and Ex Post Interventions

Chapter:
(p.293) 9 Credibility, Commitment, and Regulation: Ex Ante Price Caps and Ex Post Interventions
Source:
The Natural Resources Trap
Author(s):

Dieter Helm

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262013796.003.0014

This chapter sets out the origins of RPI-X regulation and the context of privatization, with its multiple objectives—and not just efficiency. It describes the salient framework of the regulatory institutions and, in particular, the considerable scope for ex post intervention created by the widely drawn general duties of the regulators, and then turns to the financial dimensions of regulation and the regulatory asset bases (RABs) and the determination of the cost of capital. Having set out the main architecture of RPI-X, the chapter turns to the two examples of ex post intervention—the revision of price caps within periods and the windfall tax. The chapter then sets out the main implications that flow from these examples, and provides a framework for more efficient ex ante contracts that might mitigate the scope for ex post interventions. Before concluding, the chapter briefly contrasts the experience in the utilities with that of the North Sea oil and gas development.

Keywords:   privatization, RPI-X regulation, ex post intervention, regulatory asset bases, RABs, cost of capital, price caps, windfall tax, ex ante contracts

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