Methods and trends of performance benchmarking in UK utility regulation

Thoralf Dassler*, David Parker, David S. Saal

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

Regulation is subject to information asymmetries that can lead to allocative and productive inefficiencies. One solution, suggested by Shleifer in 1985 and now adopted by many regulatory bodies round the world, is 'benchmarking', which is sometimes called 'yardstick competition'. In this paper we consider Shleifer's original approach to benchmarking and contrast this with the actual use of benchmarking by UK regulatory bodies in telecommunications, water and the energy sector since the privatizations of the 1980s and early 1990s. We find that benchmarking plays only one part and sometimes a small part in the setting of regulatory price caps in the UK. We also find that in practice benchmarking has been subject to a number of difficulties, which mean that it is never likely to be more than one tool in the regulator's armoury. The UK's experience provides lessons for regulation internationally. © 2006 Elsevier Ltd. All rights reserved.

Original languageEnglish
Pages (from-to)166-174
Number of pages9
JournalUtilities Policy
Volume14
Issue number3
DOIs
Publication statusPublished - Sep 2006

Keywords

  • benchmarking
  • UK
  • utility regulation
  • yardstick competition

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