Rate of return regulation

The present Spanish system of price control is inefficient, as it provides notable negative incentives for pharmaceutical consumption and expenditure it would be desirable to replace it with a more flexible system such as an overall profit control system, or a combination of price-cap regulation and rate of return regulation. 

Liston, C. (1993), Price-cap versus rate-of-return regulation , Journal of Regulatory Economics, 5, 25-48. 

Finally, it should be noted however, that the rate of return regulation not necessarily exclude congestion pricing, two part tariffs or other more advanced tariff schemes in order to enhance rationing efficiency. 

A simple return on equity can be used as a yardstick. Utilities are required by regulators to set their rates to obtain a given rate of return. This return is usually constant over the years and from project to project, so management must choose among projects on some basis other than profit. 

Regulatory bodies at both the federal and state level attempt to ensure that electric power is provided economically, and in a safe and reliable manner. The primary method of electricity regulation has been rate of return, or cost-based, regulation. Here regulators set the rates utilities are allowed to charge their customers. This cost-based regulation allows... 

Three submarkets of the pharmaceutical market can be distinguished innovative patented products sold by prescription, products whose patent has expired and are sold by prescription, and products sold without a prescription. The public regulation of prices in the first of these submarkets, and often also in the second, is a fact that can be observed in most Western countries, with certain notable exceptions such as the USA. Concern about the particular characteristics of the pharmaceutical market (for example, the existence of patents and the pharmaceutical industry s rate of return), together with the desire to provide the majority of the population with access to medicines, regardless of their ability to pay (in many countries the public sector is the main buyer in this market), has led to the fairly widespread adoption of more or less strict price intervention and control policies for pharmaceuticals. 

If the fair rate of return is greater than the capital cost, a bias is generated in the use of resources in favour of capital (for example, overinvestment in R D ) that leads to the use of an inefficient combination of resources (Averch-Johnson effect). This overinvestment can be attractive to the regulator, which attaches much value to the goals of industrial policy and employment. 

The pre tax rate of return is expected to be 7% - see regulations December 20th 2002 httn //www.den.no/archive/oedvedlegg/01/02/denar055.pdf... 

There are three basic principles of investing 1) risk and how risk regulates the rate of return, 2) how diversification moderates risk, and 3) growth through compounding, which is even better when it is tax deferred. 

Energy users require a higher rate of return on their investment than do regulated energy producers (e.g., gas and electric utilities) who face lower risks. 

Figure 2 shows the relationship between internal rate of return and gross payback for a specific set of tax regulations (10% investment tax credit, 50% tax rate), 6% per year increase in power, fuel, and O M costs, and sum-of-digits depreciation for both 10-year life (for recuperators and heat exchangers) and 20-year life (for power generation equipment and boilers). We see that life has little effect on the internal rate of return for gross payback periods less than about 3 years. 

In the United Kingdom, the government controls the cost of pharmaceuticals not by limiting individual product prices, but by setting a cap on the profit that individual pharmaceutical companies can enjoy from their business with the National Health Service. Each company negotiates with the Secretariat of Pharmaceutical Price Regulation Scheme (PPRS) a total rate of return on the capital employed in generating its sales to the British National Health Service (NHS). 

Brownlee, O. H., The Economic Consequences of Regulating Without Regard to Economic Consequences, Issues in Pharmaceutical Economics, R.A. Chien (ed.)(Lexington, MA D.C. Heath and Company, 1979) as cited in Jensen, E.J., Rates of Return to Investment in the Pharmaceutical Industry A Survey, contract paper prepared for the Office of Technology Assessment, U.S. Congress, September 1990. 

Solomon, E., Alternative Rate of Return Concepts and Their Implications for Utility Regulation, Bell Journal of Economics 1 65-81, Spring 1970. 

Production management has to look into all these and ensure that the plant runs safely, without causing any environmental pollution while complying with all statutory rules and regulations, and generates sufficient revenues to get a satisfactory rate of return. These essential activities are briefly described below and... 

A central issue for the financial viability of nuclear power in a competitive market is the fact that the construction costs of most nuclear power stations in the U.S. were high, usually much higher than anticipated. Under cost-of-service regulation, the capital costs (a rate of return on capital, plus... 

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