Reflections on RPI-X regulation in OECD countries

Abstract

The form of regulation initially proposed by the Littlechild (1983) report has not only been implemented in UK regulated industries, but has also become a benchmark approach to regulation worldwide. RPI-X has been widely adopted in different industries in OECD countries both to incentivise efficiency and also to support privatisation, and this paper shows the breadth of countries and industries in which it has been applied. It has also contributed to the development of infrastructure as a separate asset class. It is difficult to overstate the long-term impact of the 1983 paper. However, the precise way in which RPI-X regulation is implemented differs widely. On occasions, a price control process is implemented largely because it is a well-respected benchmark approach, but with less appreciation of the intended objectives. Designers of regulatory frameworks would do well to recall the analysis in the original Littlechild paper which highlighted that regulation is not an end in itself, but a means to an end, and successful applications of the framework respect this.