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Rent Extraction and Incentives for Efficiency in Recent Regulatory Proposals

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  • Gasmi, F
  • Ivaldi, M
  • Laffont, Jean Jacques

Abstract

Building 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 Info

Article provided by Springer in its journal Journal of Regulatory Economics.

Volume (Year): 6 (1994)
Issue (Month): 2 (May)
Pages: 151-76

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Handle: RePEc:kap:regeco:v:6:y:1994:i:2:p:151-76

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Web page: http://www.springerlink.com/link.asp?id=100298

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Cited by:
  1. Philippe Gagnepain, 2001. "La nouvelle théorie de la régulation des monopoles naturels : fondements et tests," Post-Print hal-00622947, HAL.
  2. Dalen, Dag Morten & Gomez-Lobo, Andres, 1997. "Estimating cost functions in regulated industries characterized by asymmetric information," European Economic Review, Elsevier, vol. 41(3-5), pages 935-942, April.
  3. David Hawdon & Lester C. Hunt & Paul Levine & Neil Rickman, 2007. "Optimal sliding scale regulation: an application to regional electricity distribution in England and Wales," Oxford Economic Papers, Oxford University Press, vol. 59(3), pages 458-485, July.
  4. Weisman, Dennis L., 2002. "Is there 'Hope' for price cap regulation?," Information Economics and Policy, Elsevier, vol. 14(3), pages 349-370, September.
  5. Lise Rochaix, 1997. "Asymétries d'information et incertitude en santé : les apports de la théorie des contrats," Économie et Prévision, Programme National Persée, vol. 129(3), pages 11-24.
  6. Iossa, Elisabetta & Stroffolini, Francesca, 2005. "Price cap regulation, revenue sharing and information acquisition," Information Economics and Policy, Elsevier, vol. 17(2), pages 217-230, March.
  7. Iossa, Elisabetta & Stroffolini, Francesca, 2002. "Price cap regulation and information acquisition," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 1013-1036, September.
  8. Harvey James & Derek Johnson, 2002. "Understanding Regulatory Environments and their Impact on Economic Change," Industrial Organization 0202001, EconWPA.
  9. Laffont, Jean-Jacques, 1993. "Nouvelles formes de réglementation," L'Actualité Economique, Société Canadienne de Science Economique, vol. 69(2), pages 3-15, juin.
  10. Francesca Stroffolini, 2009. "Access Profit-Sharing Regulation with Information Transmission and Acquisition," CSEF Working Papers 214, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  11. Bousquet, Alain & Ivaldi, Marc, 1997. "Optimal pricing of telephone usage: An econometric implementation," Information Economics and Policy, Elsevier, vol. 9(3), pages 219-239, September.
  12. Jose Luis Lima R & Andres Gomez Lobo, 2004. "Good Regulatory Lags for Price Cap and Rolling Cap contracts," Econometric Society 2004 Latin American Meetings 278, Econometric Society.
  13. Jean-Jacques Laffont, 2000. "Information et économie publique," Économie et Prévision, Programme National Persée, vol. 145(4), pages 107-115.

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