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Good Regulatory Regimes

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  • Richard Schmalensee

Abstract

Assuming simple functional forms, numerical methods are used to analyze linear regulatory rules that include cost-plus and price-cap regimes. Regulators are assumed to observe actual cost, but not the disutility of cost reduction, and are assumed unable to impose taxes or make transfers. Best linear regimes depend importantly on the level and form of uncertainty, the regulatory objective function, and the firm profitability constraint. Under uncertainty, regimes in which price depends in part on actual cost generally substantially outperform pure price caps, particularly in terms of consumers' surplus.

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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: 417-436

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Handle: RePEc:rje:randje:v:20:y:1989:i:autumn:p:417-436

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Cited by:
  1. Yoshitaka Fukui & Kyoji Oda, 2012. "Discussion Paper: Who Should Take Responsibility for Unexpected Interest Changes? Lesson from the Privatization of Japanese Railroad System," Networks and Spatial Economics, Springer, Springer, vol. 12(2), pages 263-278, June.
  2. Galal, Ahmed & Nauriyal, Bharat, 1995. "Regulating telecommunications in developing countries : outcomes, incentives, and commitment," Policy Research Working Paper Series, The World Bank 1520, The World Bank.
  3. T. N. Srinivasan, 2002. "Privatisation, Regulation, and Competition in South Asia," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 41(4), pages 389-422.
  4. J.A. den Hertog, 2010. "Review of economic theories of regulation," Working Papers, Utrecht School of Economics 10-18, Utrecht School of Economics.
  5. Zwart, G. & Broer, D.P., 2012. "Optimal Regulation of Lumpy Investments," Discussion Paper, Tilburg University, Tilburg Law and Economic Center 2012-020, Tilburg University, Tilburg Law and Economic Center.
  6. Mark Armstrong & David Sappington, 2005. "Regulation, Competition and Liberalization," Industrial Organization, EconWPA 0505011, EconWPA, revised 07 Oct 2005.
  7. Harvey James & Derek Johnson, 2002. "Understanding Regulatory Environments and their Impact on Economic Change," Industrial Organization, EconWPA 0202001, EconWPA.
  8. John E. Kwoka, 1993. "Implementing price cops in telecommunications," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(4), pages 726-752.
  9. 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.
  10. Ingo Vogelsang, 2006. "Electricity Transmission Pricing and Performance-based Regulation," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 97-126.

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