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Article
Publication date: 1 April 2002

Noel D. Uri

Incentive regulation has become an important regulatory tool in the telecommunications industry in the USA. The issue explored here is whether incentive regulation has…

Abstract

Incentive regulation has become an important regulatory tool in the telecommunications industry in the USA. The issue explored here is whether incentive regulation has resulted in an increase in productive efficiency. After providing an overview of the nature of incentive regulation, a methodology for measuring technical efficiency and its change is introduced. This is a multiple‐output/multiple‐input distance function approach to measuring technical efficiency. The results of implementing this approach for 19 local exchange carriers for the 1988‐1999 period indicate that, in the production of local service, intrastate toll/access service, and interstate access to local loops, there was no change in technical efficiency between the 1988‐1990 and the 1991‐1999 periods, something that incentive regulation was specifically designed to promote.

Details

Journal of Economic Studies, vol. 29 no. 2
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 June 2003

Noel D. Uri

The issue explored is whether incentive regulation of local exchange carriers in the USA has resulted in an increase in efficiency. After providing an overview of the…

Abstract

The issue explored is whether incentive regulation of local exchange carriers in the USA has resulted in an increase in efficiency. After providing an overview of the nature of incentive regulation, the methodology for measuring the effects of incentive regulation on efficiency is reviewed. This methodology is data envelopment analysis and allows for the measurement of both technical efficiency and allocative efficiency of individual local exchange carriers. The results of empirically implementing the data envelopment approach (DEA) approach indicate that there is little change in technical efficiency. In fact average technical efficiency in 1988 was the same as in 2001. Next, while outputs continued to grow at about their historical rate across LECs, the sizeable increase in the two types of capital increased inputs well above their historical average rates for some LECs leading to short run allocative inefficiency. On average, however, allocative efficiency shows no identifiable trend between 1988 and 2001. Finally, in the aggregate, total economic efficiency does not demonstrate any trend between 1988 and 2001.

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info, vol. 5 no. 3
Type: Research Article
ISSN: 1463-6697

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Article
Publication date: 18 May 2012

Suhaiza Hanim Mohamad Zailani, Tarig K. Eltayeb, Chin‐Chun Hsu and Keah Choon Tan

Environmental sustainability literature provides extensive evidence that business organizations, societies, and governments all have a stake in green operations…

Abstract

Purpose

Environmental sustainability literature provides extensive evidence that business organizations, societies, and governments all have a stake in green operations management. Despite the importance of a firm's effort to alleviate environmental damages and provide economic benefits to organizations, little is known about the external institutional drivers that enable firms to adopt internal proactive environmental strategies. This purpose of this study is to examine the extent to which an internal proactive environmental strategy (eco‐design) and external institutional drivers (government regulations and incentives, customer pressures) motivate firms to adopt eco‐deigns that influence environmental performance.

Design/methodology/approach

Hypotheses are tested using data from a sample of 132 EMS ISO 14001 – certified manufacturing firms in Malaysia. Specifically, this study uses survey data to validate the major premises in our proposed model.

Findings

Empirical tests of the hypotheses with structural equation modeling (SEM) support the posited explanation that external institutional drivers influence a firm's environmental performance both directly and indirectly through its internal proactive environmental strategy. These findings extend prior research by establishing the importance of the relationships among regulations/incentives, customer pressures, eco‐designs, and environmental performance.

Research limitations/implications

Although the research design incorporates extensive literature reviews, it does not capture every aspect of underlying constructs characteristics. Future efforts should establish a valid, reliable instrument for these constructs.

Practical implications

This research provides rigorous empirical support of the contribution of eco‐design to environmental performance. This finding helps managers recognize how to leverage their internally developed eco‐designs capabilities by responding to external pressures and institutional concerns. The response to external institutional pressures provides a basis for creating an inimitable eco‐design resource base, which is critical to environmental sustainability.

Originality/value

This study examines a key factor, eco‐design, that may transmit the influence of regulations/incentives and customer pressures to firm's environmental performance. The findings provide strong support for the main thesis, as well as valuable insights about predictors of firm environmental performance.

Details

International Journal of Operations & Production Management, vol. 32 no. 6
Type: Research Article
ISSN: 0144-3577

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Article
Publication date: 1 May 2005

David Parker and Colin Kirkpatrick

The aim of the paper is to examine alternative methods of regulating prices and/or profits of privatised utilities in low‐income countries with a view to identifying their…

Abstract

Purpose

The aim of the paper is to examine alternative methods of regulating prices and/or profits of privatised utilities in low‐income countries with a view to identifying their strengths and weaknesses.

Design/methodology/approach

The economics of regulation literature has favoured the use of a price cap over rate of return or cost of service regulation because of its greater incentive effects. A third alternative, sliding‐scale regulation, has been put forward as a compromise between the price cap and a controlled rate of return, which is said to combine the merits of both methods. This paper considers the operation of a price cap, rate of return regulation and sliding‐scale regulation in the context of low‐income economies by reviewing the theory in relation to the conditions likely to be found in low‐income economies.

Findings

It is concluded that the case for the use of a price cap is much reduced in low‐income economies. This is because of its information requirements, need for regulatory expertise and, more broadly, the institutional endowment found in many low‐income countries.

Research limitations/implications

It is recognised that this conclusion is tentative and deserves further research, comparing theory and practice.

Practical implications

Countries need to consider carefully which method of regulation will work best in the context of the institutions of the country, rather than simply copy a method from the developed world.

Originality/value

This is one of the first papers to challenge the prevailing belief that price cap regulation is superior to rate of return regulation in the context of economic development.

Details

International Journal of Public Sector Management, vol. 18 no. 3
Type: Research Article
ISSN: 0951-3558

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Book part
Publication date: 12 September 2017

Margaret Arblaster

The concept of light-handed regulation, including light-handed approaches to the regulation of airport services, is discussed. The rationale for the economic regulation of…

Abstract

The concept of light-handed regulation, including light-handed approaches to the regulation of airport services, is discussed. The rationale for the economic regulation of airport services and the traditional approaches used for economic regulation of airport charges are summarized. The evolution of international practice of light-handed regulation is outlined, including the experience with minimal regulation across monopoly industries in New Zealand and the acceptance of “negotiated settlements” in utility industries in North America. General reasons for moving to light-handed regulation of airports include the disadvantages of the price cap approach in practice and the benefits of facilitating greater negotiation between airports and users. Comparisons are made between alternative approaches to light-handed regulation of airport services, including price and quality of service monitoring, information disclosure regulation and negotiate-arbitrate regulation, approaches that have been applied to airport services in Australia and New Zealand. The role and nature of the incentives under each approach are discussed. The chapter concludes that whether light-handed regulation provides a suitable alternative approach to direct regulation depends on the market circumstances and the design characteristics of the light-handed approach.

Details

The Economics of Airport Operations
Type: Book
ISBN: 978-1-78714-497-2

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Article
Publication date: 15 November 2011

Stefan Schwerter

The financial crisis 2007‐2009 calls for a regulatory response. A crucial element of this task is the treatment of systemic risk. Basel III gains centre stage in this…

Abstract

Purpose

The financial crisis 2007‐2009 calls for a regulatory response. A crucial element of this task is the treatment of systemic risk. Basel III gains centre stage in this process. Thus, the purpose of this paper is to evaluate Basel III, examining its ability to reduce systemic risk.

Design/methodology/approach

The paper highlights the importance of reducing systemic risk to achieve the goal of overall financial stability. By first focusing on the theoretical foundations of systemic risk, this paper explores and analyzes the crucial aspects of this almost impalpable risk type. It further investigates the current regulation of systemic risk, clearly showing Basel II's inability to reduce it. Then, it evaluates the Basel Committee's efforts to address these weaknesses through Basel III by investigating its incentives and its ability to reduce obvious drawbacks of Basel II as well as systemic risk factors.

Findings

The findings show that there are still adjustments necessary. Although the development of Basel III is well advanced, providing some stabilizing incentives, there are still issues calling for closer consideration to counter all Basel II drawbacks and systemic risk factors adequately. These include: a risk‐weighted leverage ratio; a more thorough treatment of procyclicality; adjustments for the NSFR (Net Stable Funding ratio); and most importantly, the mandatory issue to internalize negative externalities from financial institutions, that is, the call for pricing systemic risk.

Originality/value

The paper not only examines the new Basel III framework, as a response to the Financial Crisis 2007‐2009, but also draws attention to specific areas which the Basel Committee and regulators need to focus on more thoroughly.

Details

Journal of Financial Regulation and Compliance, vol. 19 no. 4
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 11 April 2008

Sidney Tozzini

The regulation model used by Agência Nacional de Energia Elétrica (ANEEL) (Brazilian National Agency of Electric Energy) brings together the incentive regulation approach…

Abstract

Purpose

The regulation model used by Agência Nacional de Energia Elétrica (ANEEL) (Brazilian National Agency of Electric Energy) brings together the incentive regulation approach (price cap) and benchmarking practices to establish the “efficient” operational costs of regulated companies using a “shadow” or “reference” firm. The specific objective is to evaluate in what extent the adoption of the “reference firm” would condition the strategic goals of the regulated firms.

Design/methodology/approach

The paper analyses the correlation between the efficient operational costs set by the reference firm and operational variables of actual utilities during the first cycle of the periodic price revisions conducted by ANEEL from 2003 to 2006, for utilities with more than 400,000 consumer units.

Findings

The analysis shows that the use of the reference firm promotes short‐term efficiency goals for regulated utilities (thus promoting the maintenance of their existent structure). However, it would restrain their technological updating (long‐term efficiency) and their adjustment to meet future demand growth (both vertical and horizontal).

Research limitations/implications

The analysis comprises a sample of 28 utilities with more than 400,000 consumer units and a limited set of physical and economic variables. The study could be improved with the inclusion a number of additional economic and physical variables coupled with the use of additional statistical tools to further test its results for the next cycle of periodic price reviews (2007‐2010).

Originality/value

The study is a first quantitative attempt to analyze the relationship between economic regulation and its consequences upon the strategic management of the utilities conducted in the energy distribution industry in Brazil.

Details

International Journal of Energy Sector Management, vol. 2 no. 1
Type: Research Article
ISSN: 1750-6220

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Article
Publication date: 1 April 2004

Noel D. Uri and Paul R. Zimmerman

In 1999 the Federal Communications Commission adopted an order granting complete deregulation of the rates for special access service for specific metropolitan statistical…

Abstract

In 1999 the Federal Communications Commission adopted an order granting complete deregulation of the rates for special access service for specific metropolitan statistical areas based on an objective showing that there was potential competition in that market. This was done in an environment where the local exchange carriers (LECs) subject to price caps were earning a rate of return in excess of 22 percent, with the rate of return on an upward trend. By 2002, the average rate of return across all price cap LECs topped 35 percent. The question that is investigated in this paper is whether the price cap LECs have market power in supplying special access service and whether they have taken advantage of this. The data clearly show that this is the case. Given the prevailing situation, there is a clear need to revisit the pricing flexibility order. First, the product market for special access service needs to be more carefully examined. Second, the metrics used to define the potential for competition need to be revamped.

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Article
Publication date: 5 April 2013

Anastassios Gentzoglanis

Regulatory and institutional changes, restructuring and/or privatization of the erstwhile vertically integrated electricity networks have been adopted by all Sub‐Saharan…

Abstract

Purpose

Regulatory and institutional changes, restructuring and/or privatization of the erstwhile vertically integrated electricity networks have been adopted by all Sub‐Saharan African (SSA) countries in their pursuit of rural and urban electrification, poverty reduction and economic growth. But advances with the reforms remain limited and the results are at best debatable. The purpose of this paper is to examine the reasons for the unsuccessful implementation of deregulation in Sub‐Sahara electricity markets.

Design/methodology/approach

The paper examines the experiences with deregulation of the electricity industries in developed and developing economies and surmises on the factors that have contributed to the success of reforms in some industrialized countries and identifies the factors that have contributed to the failure of reforms in SSA. The “evidence‐based economics” (EBE) methodology is used to analyze the existing models of regulation and their differences particularly as they are practiced in SSA and developed economies. A gap analysis is realized by highlighting the differences between best practices and the existing level of knowledge. Two case studies are analyzed and the collection of information is assessed in a way that is useful for the development and implementation of the most appropriate models of regulation for SSA.

Findings

The paper finds that the current trend to the regionalization of the electricity markets in SSA and the creation of regional power pools make possible the creation of a genuine regional electricity market which would provide new opportunities for the adoption and adaptation of more advanced models of regulation (2‐G and/or 3‐G) similar to the ones currently employed by some developed economies in Europe and North America. To do so, regulators in SSA need to adopt a more dynamic approach to regulation.

Research limitations/implications

Given the comparative approach of this paper, it is not possible to prove that SSA countries will succeed in their electricity reforms by adopting the 2‐G and 3‐G regulatory models. Nonetheless, if they do follow the dynamic approach to regulation, as suggested in the paper, their chances to succeed are much better.

Practical implications

The analysis of this paper has major implications for governments, regulators, shareholders, customers and employees of the electricity industry. A better understanding of the reasons for the failure of previous reforms and the identification of major advantages and disadvantages of the electricity markets in SSA provide new opportunities and challenges. The success of the application of the 3‐G model may increase the competitiveness of the electricity industry and productive capacity of Sub‐Saharan countries.

Social implications

Electricity is an essential input in any industrial and commercial process. Its availability reduces costs, enhances productivity and creates jobs in other sectors. The social well‐being of Sub‐Saharan countries would increase by adopting the 3‐G model suggested in this paper.

Originality/value

To the best of the author's knowledge, there are no recent studies dealing with the same issues particularly for Sub‐Sahara Africa. This paper fulfils the gap that exists in the literature.

Details

African Journal of Economic and Management Studies, vol. 4 no. 1
Type: Research Article
ISSN: 2040-0705

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Article
Publication date: 27 February 2009

Vinh Sum Chau

The purpose of this paper is to review the evolution and development of customer service performance measures in the electricity sector since privatization in 1989, and…

Abstract

Purpose

The purpose of this paper is to review the evolution and development of customer service performance measures in the electricity sector since privatization in 1989, and then examine the impact of a specific recent energy regulatory requirement (known as information and incentives project (IIP)) on the organizational management of an exemplar electricity distribution company. Also discussed is how the sector has tried to learn from benchmarks from a number of such literary disciplines as economics, marketing service quality, and total quality management.

Design/methodology/approach

The research first presents a survey of the historical development of performance standards based on archival documentation. It is then augmented by the employment of a longitudinal “tracer study”, involving the isolation and firsthand real time qualitative observations of a company's key strategic and operational activities, to understand how they related to the other organizational phenomena at large. This process spanned an investigative period of two years.

Findings

The paper finds that much of the early standards used in electricity immediately after the sector's privatization rested much on those in the water and gas safety sectors, which themselves were then admittedly inadequate in UK. The IIP, a complementary set of service quality standards, worked on these early problems, but the implementation of the new scheme proved problematic and warranted major organizational reengineering, as shown in the exemplar company, ElectriCo. IIP has impacted on organizational management mostly in the areas of: higher‐level strategic change, causing noticeable internal confusion during strategic transitions, building a performance management system, improvements in performance data, and establishing more effective ways for management.

Research limitations/implications

While the case example used in the research is a regional monopoly and is a good representation of the context in which the service standards operate, the findings are limited to the one company. It is a UK specific context without international comparison.

Originality/value

The research has combined archival research with an innovative firsthand methodological approach (tracer studies). Its value is in how the story of service standards in electricity (and specifically distribution) has been augmented from the early customer service standards to the most recent IIP considerations. It also looks from within the company, which has been missing in longstanding research in the more traditional disciplines such as economics.

Details

Benchmarking: An International Journal, vol. 16 no. 1
Type: Research Article
ISSN: 1463-5771

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