Decentralized pricing management in housing and municipal economy

Actuality of research theme. The process of Ukraine's integration into the European Community actualizes the issue of the compliance of the administrative and territorial structure with European principles of regional and local development organization, and the formation of local self-government. Nowadays the problem of developing an effective system of management of the infrastructure united territorial communities (UTCs) formation in the context of administrative and territorial reform implementation based on the principles of decentralization becomes especially acute. Problem statement. Nowadays conditions, the reform of the administrative-territorial structure and the decentralization of power in Ukraine require special attention to the problem of housing and communal services management, since its maintenance is ensured by local authorities and created in the process of reforming the united territorial communities (OTСs). Analysis of the last researches and publications. The modern aspects of decision of problems of development of territorial communities and local self-government such scientists engage in, as Pavliuk A. P., Oliinyk D. I., Batalov O. A., Datsko O. I., Murkovych L. L., Molodozhen Yu. B.and other [1-4]. The results of own researches of problem are in to [5-13]. Selection of unexplored parts of general issue. The new administrative and territorial system should become the basis for constructing a new model of territorial administration, based on the principles of decentralization, subsidiarity, balance of national interests with regional and territorial communities` interests representation, local self-governance widespread, territorial communities` power and autonomy, coherence with natural geographical capacity. That is why the problem of mechanism for managing regional housing and communal services programs and to determine the optimal pricing models taking into account world experience. Task statement, research aim. To search for new mechanisms of efficient pricing management in housing and utilities using world experience and peculiarities of domestic business practices. Method or methodology of realization of research. In the process of realization researches drawn on scientific (analysis and synthesis, induction and deduction, analytical grouping) and special (abstracting, economical-mathematical design, etc.) methods of study of the economic phenomena and processes. Exposition of basic material (job performances). In the world practice certain methods of pricing under natural monopoly were formed. The analysis of the essence and peculiarities of these methods to adopt the best practices: а) Rate of return regulation. This is the most traditional approach to set price of goods (services) of natural monopolies. It is based on cost-plus pricing calculation. It is used in Ukraine. b) Price cap regulation (price restrictions). The method`s essence is to set fixed maximum price limitations by the regulatory institution. The institution has the right to set the price, which is lower or equals the limit, and to profit. As the profit does not correlate to costs, there is the stimulating mechanism to cut them. The model assumes quite a long period between tariff revisions – 4-5 years. c) Profit-sharing plan with sliding scale. Unlike the previous method, in which natural monopoly gains significant profits, this method assumes to use the sliding scale of profit distribution between a producer and a consumer. d) Price discrimination. Price discrimination is a pricing strategy that charges customers or their groups’ different prices for the same product or service. Price difference does not depend on production costs or supply costs. Price discrimination is possible if consumers` direct price elasticity of demand is different. Conclusions. The analysis of the natural monopoly`s world pricing practice, including national housing and utilities sector has been carried out. It has been stated that the main methods of monopolistic pricing are: rate of return regulation; price cap regulation (price restrictions); profit-sharing plan with sliding scale; price discrimination; multi-rate tariffs; pricing for different competition forms, compatible with natural monopoly.The obtained findings prove the necessity of modification to the housing and utilities sector’s monopoly market by implementation of competition elements.

ELECTRICITY TARIFFS IN GEORGIA

Article discusses electricity tariff setting methods, such as: «Rate of Return Regulation», «Price Cup Regulation», «Return Assets Base (RAB)» and «Cost Plus». Meet the interests of electricity producers and consumers are one of the indicators of the health of the electricity sector. At present, the Georgian electricity market is striving to harmonize with EU standards and established electricity tariff methodology should be use the best method to encourage investors to invest in the field and expand their infrastructure while ensuring the reliability and efficiency of electricity supply.

Measuring the Welfare Gains from Optimal Incentive Regulation

I empirically measure the welfare gains from optimal incentive regulation in the context of electric utilities facing both emissions and rate of return regulation (RORR). I provide evidence that RORR induces lower fuel efficiency, leading to greater coal consumption and higher emissions abatement costs. Replacing RORR with the optimal mechanism of Laffont and Tirole (1986) yields annual welfare gains of $686 million or a 11% reduction in electricity prices. I construct a much simpler two-contract menu that can achieve more than 65% of these welfare gains.