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Regulatory Options and Price-Cap Regulation

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  • Tracy R. Lewis
  • David E.M. Sappington

Abstract

We construct a simple model of the regulatory process in which a monopoly firm has private information about its capabilities and its cost-reducing activities. The optimal regulatory policy offers the firm a choice between two regulatory regimes, one of which resembles price-cap regulation. The other regime has the firm share realized gains in surplus with consumers. We examine the optimal linking of the two regimes and show how the optimal regulatory policy varies with changes in the technological climate in the industry and with the nature of the information asymmetry between regulator and firm.

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Bibliographic Info

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

Volume (Year): 20 (1989)
Issue (Month): 3 (Autumn)
Pages: 405-416

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Handle: RePEc:rje:randje:v:20:y:1989:i:autumn:p:405-416

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Web page: http://www.rje.org

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Cited by:
  1. Iossa, Elisabetta & Stroffolini, Francesca, 2002. "Price cap regulation and information acquisition," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 1013-1036, September.
  2. 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.
  3. Erdogdu, Erkan, 2005. "Energy market reforms in Turkey: An economic analysis," MPRA Paper 26929, University Library of Munich, Germany.
  4. Josh Lerner, 2000. "150 Years of Patent Office Practice," NBER Working Papers 7477, National Bureau of Economic Research, Inc.
  5. Enzo Defilippi Angeldonis, 2013. "X-factor estimation and controversies: the case of Lima´s airport," Working Papers 13-09, Departamento de Economía, Universidad del Pacífico, revised Oct 2013.
  6. Luigi Benfratello & Alberto Iozzi & Paola Valbonesi, 2005. "Privatisation, regulation and productivity in the Italian motorway industry," "Marco Fanno" Working Papers 0002, Dipartimento di Scienze Economiche "Marco Fanno".
  7. Jeffrey I. Bernstein & David E. M. Sappington, 1998. "Setting the X Factor in Price Cap Regulation Plans," NBER Working Papers 6622, National Bureau of Economic Research, Inc.
  8. Larry Blank & John Mayo, 2009. "Endogenous Regulatory Constraints and the Emergence of Hybrid Regulation," Review of Industrial Organization, Springer, vol. 35(3), pages 233-255, November.

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