@techreport{NBERw6622,
 title = "Setting the X Factor in Price Cap Regulation Plans",
 author = "Jeffrey I. Bernstein and David E. M. Sappington",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "6622",
 year = "1998",
 month = "June",
 URL = "http://www.nber.org/papers/w6622",
 abstract = {Despite the popularity of price cap regulation in practice, the economic literature provides relatively little guidance on how to determine the X factor, which is the rate at which inflation -adjusted output prices must fall under price cap plans.  We review the standard principles that inform the choice of the X factor, and then consider important extensions.  We analyze appropriate modifications of the X factor: (1) when only a subset of the firm's products are subject to price cap regulation, and when product-specific costs and productivity cannot be measured; (2) when the pricing decisions of the regulated firm affect the economy-wide inflation rate; and (3) in the presence of structural changes in the industry, such as a strengthening of competitive forces.},
}