Incentive Regulation, Investments and Technological Change

43 Pages Posted: 3 Mar 2010

See all articles by Ingo Vogelsang

Ingo Vogelsang

Boston University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: February 2010

Abstract

Based on an idiosyncratic reading of the literature I propose intermediate (rather than tight or soft) regulation for balancing investment incentives with allocative efficiency and competition objectives. Intermediate regulation is compatible with incentive regulation and helps lengthening the regulatory commitment period necessary for incentives. However, such commitment for the whole time horizon of infrastructure or innovation investments is impossible. The compatibility of incentive regulation and efficient investment is thus in doubt. Incentive regulation for regular infrastructure investments therefore needs periodic updating based on rate-of-return regulation criteria. Innovative infrastructure investments may warrant regulatory holidays, which should be conditioned on strict criteria.

JEL Classification: L50, L90

Suggested Citation

Vogelsang, Ingo, Incentive Regulation, Investments and Technological Change (February 2010). Available at SSRN: https://ssrn.com/abstract=1562464 or http://dx.doi.org/10.2139/ssrn.1562464

Ingo Vogelsang (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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