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Commitment and Fairness in a Dynamic Regulatory Relationship

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Author Info
Baron, David P
Besanko, David

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Abstract

This paper considers a multiperiod model of a regulated firm that has (stationary) private inf ormation, which may be revealed through performance. A "Fairness" arrangement is proposed in which the firm agrees not to quit if in future periods the regulator allows it to earn a nonnegative profit given the type it revealed in earlier periods. The properties of such arrangements are studied, and an example is presented in which both the firm and the regulator prefer a fairness arrangement to a policy feasible without commitment. Copyright 1987 by The Review of Economic Studies Limited.

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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 54 (1987)
Issue (Month): 3 (July)
Pages: 413-36
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Handle: RePEc:bla:restud:v:54:y:1987:i:3:p:413-36

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  1. Dieter Helm & Najma Rajah, 1994. "Water regulation: the periodic review," Fiscal Studies, Institute for Fiscal Studies, vol. 15(2), pages 74-94, May. [Downloadable!]
  2. Galal, Ahmed & Nauriyal, Bharat, 1995. "Regulating telecommunications in developing countries : outcomes, incentives, and commitment," Policy Research Working Paper Series 1520, The World Bank. [Downloadable!]
  3. Paul L Joskow, 2005. "Incentive Regulation In Theory And Practice - Electricity Distribution And Transmission Networks," Working Papers 0514, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
    Other versions:
  4. Jonathan Hamilton & Steven Slutsky, 2003. "Optimal Nonlinear Income Taxation with a Finite Population," Levine's Working Paper Archive 234936000000000079, David K. Levine. [Downloadable!]
    Other versions:
  5. Jonathan Hamilton & Steven Slutsky, 2003. "Nonlinear Price Discrimination with a Finite Number of Consumers and Constrained Recontracting," Levine's Bibliography 234936000000000074, UCLA Department of Economics. [Downloadable!]
    Other versions:
  6. Robert Gibbons & Kevin J. Murphy, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," NBER Working Papers 3792, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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