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Consistent Regulatory Policy under Uncertainty

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Author Info
Michael J. Brennan
Eduardo S. Schwartz
Abstract

This article is concerned with the effects of regulation on the risk and value of the regulated firm in a dynamic context. Current regulatory practice is shown to be logically deficient, since it ignores the effect of regulatory policy on the cost of capital and therefore on the appropriate allowed rate of return. A notion of consistency in regulatory policy is developed, and it is shown how consistent regulatory policies may be implemented once the valuation problem is solved.

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Publisher Info
Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 13 (1982)
Issue (Month): 2 (Autumn)
Pages: 506-521
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Handle: RePEc:rje:bellje:v:13:y:1982:i:autumn:p:506-521

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  1. Steven R. Grenadier & Brian J. Hall, 1995. "Risk-Based Capital Standards and the Riskiness of Bank Portfolios: Credit and Factor Risks," NBER Working Papers 5178, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Brunekreeft, G. & McDaniel, T., 2005. "Policy uncertainty and supply adaquacy in electric power markets," Discussion Paper 06, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
  3. Gao, Pingyang, 2008. "Disclosure Quality, Cost of Capital, and Investors’ Welfare," MPRA Paper 9478, University Library of Munich, Germany, revised Jun 2008. [Downloadable!]
  4. Wayne Y. Lee & Anjan V. Thakor, 1982. "Optimal Regulatory Pricing Under Asymmetric Cost Information," Discussion Papers 580, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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This page was last updated on 2009-12-9.

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