Incentive Regulation: Expectations, Surprises, and the Road Forward

Abstract

Forty years have passed since an inflation-adjusted price cap, widely called RPI-X, was proposed as a way of controlling prices in the UK’s newly privatised monopoly telecommunications company by a form of incentive regulation. The paper traces developments since then in several jurisdictions, within the context of a wider field of changing regulatory governance involving legislatures and governments as well as regulatory agencies. The focus is on, first, the experience of increasing complexity of the incentive schemes adopted, and second on the growing political salience of regulatory decisions which adds goals such as net zero, with more direct quantitative targets, to maximising consumer welfare. The implications of these changes for regulatory interventions are considered.