Regulators Risk Setting Wrong Returns Without Diverse Cost of Equity Models.
The chapter discusses how the cost of equity is estimated in capital markets. Different economic theories suggest ways to determine this cost, but none have been proven definitively. As a result, various methods are used to estimate the cost of capital. It is important to consider different models and not rely on just one, as there is no single correct model. Regulators who stick to one approach may set incorrect returns. Canada and the United States have an advantage in this area due to their adversarial proceedings, which encourage new research and alternative thinking.
