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Original Articles

The treatment of Z factors in price cap plans

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Pages 406-408 | Received 12 Oct 1994, Published online: 02 Nov 2006
 

Abstract

Z factors are a commonly misunderstood but important component of price cap regulation. A typical concern is that they result in a double counting of special business conditions in the price cap index. This letter explains the mathematical logic for Z factors and shows that they need not result in double counting. Implementation issues are briefly discussed.

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