Chapter 1 - Motivation: Why a Book Now on the Required Rate of Return?

Abstract

In recent decades, many countries have switched from public to private ownership of large companies in the energy and transportation fields. Private ownership may come with a need for public oversight of the prices the company can charge. The private ownership–public oversight model has long been used in Canada and the United States (US), and well-established legal and administrative procedures in those countries are potential models for newly privatized companies elsewhere. Those models, which focused heavily on the fair rate of return companies required on the capital they invested, were explicitly rejected by the United Kingdom (UK), the pioneer in the privatization movement. Instead, the UK focused on regulating price trends in the belief that explicit analysis of the required return on capital would prove unnecessary. However, this belief proved incorrect. This book examines rate of return principles and associated practices in many countries to serve as an introduction for novices, a reference for the experienced, and a source of insight from the institutions used elsewhere in the world.