Yardstick competition; theory, design, and practice

A typical example is a set of regional monopolies. The regulator compares the performance of various agents and rewards or punishes agents on basis of their relative performance. Despite its conceptual simplicity, yardstick competition is hardly used in the Netherlands.

This study first analyses the theory of yardstick competition. We then formulate necessary conditions for it to be applicable, and classify the various types of yardstick competition. We proceed with a number of international examples of yardstick competition in health care, education and utilities. We end by claiming that there is a lot of scope for worthwhile applications of yardstick competition in the Netherlands, although further research is needed to fully substantiate that claim.