Common Costs And Cross-Subsidies: Misestimation Versus Misallocation
Abstract"Existing models of cross-subsidization have focused on either ex ante distortions to investments or misallocations of common costs as the principal sources of cross-subsidies in regulated firms. In this paper, we identify a third vehicle for such cross-subsidization that, given regulators' preferences, is not only likely but likely to be prominent; namely, the misestimation of the magnitude of common costs. Because our results incorporate regulators' preferences, they may provide the necessary building block for a positive theory of the magnitude of observed common costs that has, heretofore, been absent in the literature. "("JEL L51, L97") Copyright (c) 2008 Western Economic Association International.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Contemporary Economic Policy.
Volume (Year): 27 (2009)
Issue (Month): 2 (04)
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- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General
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