An Empirical Examination of the Theory and Practice of how to Set X

Sector:Competition, Regulation and Business | Multi-sector | Regulatory economics
Published: June, 2004
Document type:LE publication (working papers and economic briefs) 
Tagged: other international quantitative analysis

This Working Paper examines the setting of the X-factor in price cap regulation. We show the US-style productivity-offset  X relies on assumptions that are unlikely to hold empirically. We propose a more direct X, where X equals the forecast of TFP growth less the difference between industry input and consumer price growth.