|Sector:||Competition, Regulation and Business|
|Client:||LE Working Paper|
|Document type:||LE publication (working papers and economic briefs)|
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.