Forecasting Price Changes Under TFP Based Incentive Regulation

摘要

In this paper, a model based on Monte Carlo simulation is proposed in order to estimatethe future price cap set by the regulator under incentive regulation based on productivity benchmarking. The forecast of future price changes is demonstrated on an empirical example based on a study on the Australian National Railways carried out by the Australian Industry Commission.The resulting forecast is represented by a probability distribution of a random variable with its parameters. Factors with the highest influence on the price changes are also identified using the sensitivity analysis.