Suchergebnisse

This study aims at assessing the welfare effect of Price Cap Regulation that put in order by the government to regulate and ensure price stability for basic commodities supply in the market. In order to achieve the stated objective of the study, Stochastic Frontier Analysis of Efficiency Costs model is specified using the Cobb-Douglass Specification in its stochastic form. The parameters of the stochastic frontier functions are estimated using maximum likelihood that help to analyze the welfare effects of Price Cap Regulation. The data used for the estimation includes panel of 28 wheat flour factories in Addis Ababa from the period of May 2011 to April 2015. The major findings of the study show that Price Cap Regulation has improved the welfare of consumers as compared to the Rate of Return regulation. However, welfare distribution problem remains unsolved. The average capacity utilization of the flour mills remain as low as a quarter of their capacity and the supply of input wheat, which constitute the major cost of production of wheat flour as addressed by the government, is found to be not satisfactory. To improve efficiency of flour mills and the corresponding consumer welfare, supply of wheat need to be improved both in quantity and frequency terms. Furthermore, welfare distribution problem need to be addressed by enforcing the incentive scheme of flour mills based on the average not on the high cost firm. The study is made on the four year panel data of twenty eight flour factories situated in Addis Ababa. Such data helps to make comparative welfare effects in the study area, and to complement it, further research considering the regional flour mills and quality impact of price cap regulation can help to produce full effect assessment.

PurposeThe 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/approachThe 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.FindingsIt 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/implicationsIt is recognised that this conclusion is tentative and deserves further research, comparing theory and practice.Practical implicationsCountries 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/valueThis 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.