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Under rate-of-return regulation, a firm's product prices are constrained by the requirement that investors not earn more than an allowable return on the firm's assets. This paper examines the dynamic properties of the rate-of-return regulation process when the regulated firm periodically undertakes new capacity investments. Our analysis identifies prices that correspond to stationary values of the regulation process. It is shown that the underlying depreciation rules for property, plant, and equipment determine whether these stationary prices will be above, equal to, or below the long-run marginal cost of providing the regulated service. We provide conditions under which the rate-of-return regulation process is dynamically stable so that prices indeed converge to their stationary values. The overall efficiency of this regulation method is shown to depend on how well the applicable depreciation schedule matches the productivity pattern of the assets in use. This paper was accepted by Gérard P. Cachon, accounting.

Orientation: The Ports Regulator of South Africa (PRSA) allows South Africa’s National Ports Authority (NPA) to use a rate of return pricing methodology called the Required Revenue (RR) model to annually apply for tariff increases.Research Purpose: This article compares the pass-through of corporate tax rate approach to the use of an equitable tax rate in the RR model from 2011 to 2017.Motivation for the study: From 2011 to 2017, the PRSA allowed the use of the pass-through of corporate tax rate (28%) approach in the RR model. However, from 2018 it applied an equitable tax rate approach. It can be argued that the equitable tax rate approach should have been used from 2011.Research design, approach and method: The calculation of the equitable tax rate uses Transnet’s annual segmental financial statements. The results are compared with the revenue results from the pass-through of the corporate tax rate approach.Main findings: Applying the equitable tax rate (15.73%) as opposed to a pass-through tax rate (28%), the NPA revenue would have been R2.6 billion (US $187m) lower, a substantial saving for port users.Practical/managerial implications: Continuing to apply this equitable tax rate approach could result in future annual savings of about R500m (US$ 36m) for port users if the NPA remains a division. However, if the NPA is incorporated as a subsidiary, then the original pass-through of corporate tax rate approach should resume.Contribution/value-add: Reports on the development of the equitable tax rate approach and its contribution to economic regulatory methodology.

Purpose Self-regulatory processes play an important role in mediating between the disease and the health outcomes, and potentially also work outcomes. This systematic review aims to explore the relationship between illness perceptions and work participation in patients with somatic diseases and complaints. Methods The bibliographic databases Medline, PsycINFO and Embase were searched from inception to March 2008. Included were cross-sectional or longitudinal studies, patients with somatic diseases or complaints, illness perceptions based on at least four dimensions of the common sense model of self-regulation, and work participation. Results Two longitudinal and two cross-sectional studies selected for this review report statistically significant findings for one or more illness perception dimensions in patients with various complaints and illnesses, although some dimensions are significant in one study but not in another. Overall, non-working patients perceived more serious consequences, expected their illness to last a longer time, and reported more symptoms and more emotional responses as a result of their illness. Alternatively, working patients had a stronger belief in the controllability of their condition and a better understanding of their disease. Conclusions The limited number of studies in this review suggests that illness perceptions play a role in the work participation of patients with somatic diseases or complaints, although it is not clear how strong this relationship is and which illness perception dimensions are most useful. Identifying individuals with maladaptive illness perceptions and targeting interventions toward changing these perceptions are promising developments in improving work participation.

Price cap regulation (PCR) arose out of dissatisfaction with rate-of-return regulation (ROR). In energy and water there has been a move away from PCR into an extended form of ROR, referred to as guaranteed return regulation (GRR). It is employed to implement policies that legislators are unwilling to apply by transparent methods, namely taxation, but willing to apply opaquely through the regulatory process. GRR does not promote efficiency and, as the California experience shows, the guarantees it provides are limited. Its success in California has been mixed and it should be considered to be a work in progress and open to improvements, some of which are outlined.

The two forms of natural monopoly regulation that are typically discussed in intermediate microeconomics textbooks are marginal cost pricing and average cost pricing (rate-of-return regulation). However, within the last 20 years, price-cap regulation has largely replaced rate-of-return regulation because of the former's potential to generate more efficient pricing structures and strong incentives for cost reduction. However, price-cap regulation has received little attention in microeconomics textbooks. The authors provide a simple discussion of price-cap regulation that demonstrates its superiority over conventional rate-of-return regulation, which forms the basis for a lecture on contemporary natural monopoly regulation.

This paper investigates the effects of alternative forms of regulation on the market penetration and capacity that are determined by a profit-maximizing monopolist providing reliability differentiated service to consumers. Both price cap and rate of return regulation lead to larger capacity and market penetration than in the absence of regulation. These forms of regulation also lead to larger consumer surplus than in the absence of regulation. A minimum reliability standard reduces market penetration, and this reduction may lead to a decrease in consumer surplus.

Infrastructure plays a key role in fostering growth and productivity and has been linked to improved earnings, health, and education levels for the poor. Yet Latin America and the Caribbean are currently faced with a dangerous combination of relatively low public and private infrastructure investment. Those investment levels must increase, and it can be done. If Latin American and Caribbean governments are to increase infrastructure investment in politically feasible ways, it is critical that they learn from experience and have an accurate idea of future impacts. This book contributes to this aim by producing what is arguably the most comprehensive privatization impact analysis in the region to date, drawing on an extremely comprehensive dataset.

In 1991 the FCC implemented a price cap plan for local exchange carriers' interstate access service designed to deal with the regulatory boundaries problem arising from the breakup of AT&T in 1984. The experience with the price cap plan demonstrates the difficulty of predicting productivity growth accurately and makes clear that regulators cannot depend upon a pure price cap plan to keep prices within a reasonable range of costs. With periodic reviews to readjust plan parameters, however, a price cap plan can maintain the rate-of-return close to the target rate-of-return without diminishing the price cap plan's incentives for efficient production. A simple method of recalculating the X-factor based on the rate-of-return over the previous three years worked well in simulations. If this procedure had been used over the price cap period 1991 to 2000, prices would have been 20 percent lower and expenditures on LECs' telecommunications service subject to a price cap would have been $3.8 billion lower. [PUBLICATION ABSTRACT]

The hypotheses of sectoral return rates on regulating capital either gravitating around or converging toward a common value is tested on data for various OECD countries by adopting two panel varying coefficient approaches. The null hypotheses receive some empirical support, which turns out to be stronger once focusing on manufacturing industries only. The paper offers a meta-analytic framework to assess the results obtained in the present contribution as well as in the past literature. Finally, implications for economic policies and future theoretical and empirical research are discussed.