Dynamic regulation of quality
AbstractWe investigate the design of incentives for quality provision in a dynamic regulation setting in which maintenance efforts and quality shocks have durable effects. When the regulator contracts with a sequence of agents, asymmetries of information can lead to overprovision of quality, reflecting a dynamic rent extraction motive. When the regulator hires a single agent to manage quality, over-provision of quality can also be used by the regulator to strengthen dynamic incentives. We further show that for small levels of asymmetric information, the regulator may prefer contracting with a sequence of agents rather than hiring a single agent if high quality shocks are relatively unfrequent, provided all parties can commit to a long-term contract. When no such commitment is feasible, the fact that quality physically links periods together leads to a ratchet effect even under recurring private information, and shorter franchises are beneficial from a social viewpoint.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 42 (2011)
Issue (Month): 2 (06)
Contact details of provider:
Postal: 1776 Main Street, P.O. Box 2138, Santa Monica, California 90407-2138
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0741-6261
More information through EDIRC
Other versions of this item:
- Auray, Stéphane & Mariotti, Thomas & Moizeau, Fabien, 2007. "Dynamic Regulation of Quality," IDEI Working Papers 397, Institut d'Économie Industrielle (IDEI), Toulouse.
- Stéphane Auray & Thomas Mariotti & Fabien Moizeau, 2008. "Dynamic Regulation of Quality," Cahiers de recherche 08-11, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Laffont, Jean-Jacques & Tirole, Jean, 1990.
"Adverse Selection and Renegotiation in Procurement,"
Review of Economic Studies,
Wiley Blackwell, vol. 57(4), pages 597-625, October.
- Laffont, Jean-Jacques & Tirole, Jean., 1988. "Adverse Selection and Renegotiation in Procurement," Working Papers 665, California Institute of Technology, Division of the Humanities and Social Sciences.
- Jean-Jacques LAFFONT & Jean TIROLE, 1990. "Adverse Selection and Renegotiation in Procurement," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 9005, Université de Lausanne, Faculté des HEC, DEEP.
- Lewis, Tracy R & Sappington, David E M, 1992. "Incentives for Conservation and Quality-Improvement by Public Utilities," American Economic Review, American Economic Association, vol. 82(5), pages 1321-40, December.
- Jean Tirole & Jean-Jaques Laffont, 1985.
"Using Cost Observation to Regulate Firms,"
368, Massachusetts Institute of Technology (MIT), Department of Economics.
- Jean-Jacques Laffont & Jean Tirole, 1985.
"The Dynamics of Incentive Contracts,"
397, Massachusetts Institute of Technology (MIT), Department of Economics.
- Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
- Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
- Gérard Gaudet & Pierre Lasserre & Ngo Van Long, 1995.
"Dynamic Incentive Contracts with Uncorrelated Private Information and History Dependent Outcomes,"
CIRANO Working Papers
- Gérard Gaudet & Pierre Lasserre & Ngo Van Long, 1993. "Dynamic Incentive Contracts with Uncorrelated Private Information and History Dependent Outcomes," Cahiers de recherche du DÃ©partement des sciences Ã©conomiques, UQAM 9302, Université du Québec à Montréal, Département des sciences économiques.
- Alessandro Pavan & Ilya Segal & Juuso Toikka, 2008.
"Dynamic Mechanism Design: Incentive Compatibility, Profit Maximization and Information Disclosure,"
Carlo Alberto Notebooks
84, Collegio Carlo Alberto.
- Alessandro Pavan & Ilya Segal & Juuso Toikka, 2009. "Dynamic Mechanism Design: Incentive Compatibility, Profit Maximization and Information Disclosure," Discussion Papers 1501, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
- Marco Battaglini, 2003.
"Long-Term Contracting with Markovian Consumers,"
Theory workshop papers
505798000000000048, UCLA Department of Economics.
- Laffont, J-J. & Tirole, J., 1989. "Provision Of Quality And Power Of Incentive Schemes In Regulated Industries," Working papers 528, Massachusetts Institute of Technology (MIT), Department of Economics.
- Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
- Dennis Gaertner, 2004. "Endogenizing Private Information: Incentive Contracts under Learning By Doing," Working Papers 0413, University of Zurich, Socioeconomic Institute.
- Gaudet, Gerard & Lassere, Pierre & Long, Ngo Van, 1995. "Optimal Resource Royalties with Unknown and Temporally Independent Extraction Cost Structures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 715-49, August.
- Susan Athey & Ilya Segal, 2007. "An Efficient Dynamic Mechanism," Levine's Bibliography 122247000000001134, UCLA Department of Economics.
- De Fraja, Gianni & Iozzi, Alberto, 2004. "Bigger and Better: A Dynamic Regulatory Mechanism for Optimum Quality," CEPR Discussion Papers 4502, C.E.P.R. Discussion Papers.
- Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.