Evaluating the Performance of Non-Bayesian Regulatory Mechanisms
AbstractThis paper compares the performance of two prominent non-Bayesian regulatory mechanisms: Sappington and Sibley's (1988) Incremental Surplus Subsidy (ISS) and Hagerman's (1990) refinement of the Vogelsang-Finsinger (1979) mechanism. The two mechanisms are shown to induce identical, non-zero levels of "abuse"--unproductive expenses that benefit the firm--though neither induces pure waste. ISS pareto-dominates the Hagerman mechanism when lump-sum transfers to the firm are non-distortionary, but the Hagerman mechanism generates greater welfare and consumer surplus when the distortionary effects of transfers are large. For a wide range of intermediate parameter values, the quantitative difference in performance between the two mechanisms is surprisingly modest. Copyright 1996 by Kluwer Academic Publishers
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Bibliographic InfoArticle provided by Springer in its journal Journal of Regulatory Economics.
Volume (Year): 9 (1996)
Issue (Month): 1 (January)
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Web page: http://www.springerlink.com/link.asp?id=100298
Other versions of this item:
- Lyon, T.P., 1993. "Evaluating the Performance of Non-Bayesian Regulatory Mechanisms," Papers 93-010, Indiana - Center for Econometric Model Research.
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- Ingo Vogelsang, 2005.
"Electricity Transmission Pricing and Performance-Based Regulation,"
CESifo Working Paper Series
1474, CESifo Group Munich.
- Ingo Vogelsang, 2006. "Electricity Transmission Pricing and Performance-based Regulation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 97-126.
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