Handle with care. A primer on incentive regulation

Abstract

Regulators increasingly rely upon incentive regulation as a substitute or refinement of traditional cost of service regulation. Focusing on incentive regulation in the US utility industry, this article first identifies four desirable attributes for incentive mechanisms. It develops a taxonomy of the types of mechanisms that are available, identifies the issues that arise in the design and evaluation of these mechanisms, and then closes with a discussion of the risks associated with various mechanisms. © 1995.