Government utility regulators set allowed profit rates using the Capital Asset Pricing Model

Evidence

In one specific set of contexts, however, the Capital Asset Pricing Model has the power of government behind it. In the United States, the United Kingdom, and other countries, privately owned utilities (such as the suppliers of electricity natural gas, and water) are often regulated by government-appointed commissions that set the maximum prices that utilities can charge or the maximum rates of profit that they can earn. In so doing, those commissions are typically required to ensure that, in the words of the crucial U.S. legal judgment, the 1949 Hope decision, “the return to the equity owner should be commensurate with returns on investments and other enterprises having corresponding risks.” — Donald MacKenzie, An Engine, Not a Camera, 1149

Categorization

• XREF: Connects to the broader performativity thesis: regulatory embedding gives models quasi-legal force, distinct from market-practitioner adoption discussed elsewhere in the book. — connects to: Regulatory use of CAPM could generate model-compliant returns but remains untested empirically — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1150; A financial model can be written into regulation to enact its own assumptions — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 742; Investor-style valuation techniques now shape public policy with coercive force — Ève Chiapello, Financialisation of Valuation, 108
• SEED: Angle: how a finance model became quasi-law through the 1949 Hope decision — the legal architecture that made CAPM a regulatory instrument.

Broader Connections

• A financial model can be written into regulation to enact its own assumptions #corroborates (0.95) — Donald MacKenzie, An Engine, Not a Camera, 742
• Regulatory use of CAPM could generate model-compliant returns but remains untested empirically #qualifies (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1150
• Investor-style valuation techniques now shape public policy with coercive force #expands (0.85) — Ève Chiapello, Financialisation of Valuation, 108