Yardstick Competition and Investment Incentives
AbstractThis paper analyzes how firms' investment incentives are affected by yardstick competition in a situation in which the regulator is unable to commit himself to the regulatory contract before firms invest. Despite its rent-extracting property, yardstick competition does not necessarily reduce efficiency-improving investment. Considering firm-specific investment, yardstick competition is shown to increase investment incentives over individual regulation affirms. In this case, therefore, yardstick competition both reduces the regulator's informational problem ex post and strengthens the firms' investment incentives ex ante. If instead investment is industry-specific, incentives to invest are lowered by yardstick competition. Copyright (c) 1998 Massachusetts Institute of Technology.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.
Volume (Year): 7 (1998)
Issue (Month): 1 (03)
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