Rent Extraction and Incentives for Efficiency in Recent Regulatory Proposals
AbstractBuilding on a simple model proposed by Schmalensee (1989), this paper uses simulation techniques to analyze and compare various regulatory schemes including Schmalensee's family of (linear) "good" regulatory regimes, a price-cap regime allowing for downward price flexibility, and a regime that combines price-cap and profit sharing. The quantitative analysis pays particular attention to measuring the trade-off between rent extraction and incentives for efficiency. The main findings of this study can be summarized as follows: First, it appears that pure price-cap regulation leaves substantial rent to the firm relative to the other regimes. Second, introducing room for downward price flexibility improves efficiency of price-cap over Schmalensee's linear regulatory regimes. Finally, by correcting in part for the distributional distortion of price-cap, the profit-sharing mechanism often yields levels of welfare comparable to optimal regulation levels. Copyright 1994 by Kluwer Academic Publishers
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Bibliographic InfoArticle provided by Springer in its journal Journal of Regulatory Economics.
Volume (Year): 6 (1994)
Issue (Month): 2 (May)
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Web page: http://www.springerlink.com/link.asp?id=100298
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- Gasmi, Farid & Ivaldi, Marc & Laffont, Jean-Jacques, 1992. "Rent Extraction and Incentives for Efficiency in Recent Regulatory Proposals," IDEI Working Papers 21, Institut d'Économie Industrielle (IDEI), Toulouse.
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