THE BEHAVIOR OF THE FIRM UNDER ALTERNATIVE REGULATORY CONSTRAINTS

We review the case for intermediate power incentive regulation such as sliding scale when the regulator is badly informed and the firm's pro fits have a shadow resource cost. We then evaluate a number of differe nt regulatory regimes including sliding scale in terms of productive a nd allocative efficiency. We find that the sliding scale principle can be applied quite generally-to dividends, profits or rate of return an d that it has attractive economic properties.