Incentives for Conservation and Quality-Improvement by Public Utilities
Abstract
We examine the design of incentive programs to motivate regulated utilities to supply
both basic service (e.g., electricity supply, local telephone service) and service
enhancements (e.g., energy-conservation services, improved clarity and speed of voice
communication). The optimal regulatory programs are shown to vary greatly, depending
upon the information available to the regulator. The price of the basic service may
optimally be distorted above or below marginal cost to better motivate the supply
of the service enhancement. Our policy prescriptions are compared with current programs
and proposals to promote energy conservation.
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Tracy R. Lewis
Walter M. Upchurch, Jr. Distinguished Professor of Business Administration
Tracy Lewis is Professor of Economics at the Fuqua School of Business at Duke University,
where he holds the Black Chair in Economics. Professor Lewis founded the Innovation
Center at the University. Prior to joining the Duke University Faculty in 2003, he
served on the faculties at the University of Florida, at the California Institute
of Technology, the University of British Columbia, and the University of California,
Davis. Aside from academic employment, he has also held positions at the Fed
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