Incomplete Contracting and Price--Cap Regulation
AbstractThis paper deals with price--cap regulation of a monopolistic distribution grid which sells a license to some retailer. The sale of the license is a long--term incomplete contract. Both the grid and the licensee engage in relationship--specific investments before the value and costs of the license are known. The resulting hold--up problem can be solved by the regulator by choosing a particular RPI - X regulation and forbidding renegotiation of the contract. The optimal price--cap regulation of the incomplete contract looks quite different from the usual RPI - X case which stipulates a functional relationship between a particular cost or productivity realization and a regulatory instrument X, without any dependence on further exogenous variables. In this paper, however, the Xs depend on many more exogenous variables, be it further realizations of costs and values, be it optimal probabilities of these realizations. If the regulator is only interested in efficient trade and efficient relationship--specific investments, moreover, the no--trade price, as chosen by grid and licensee, directly determines the values of the Xs.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 534.
Date of creation: Oct 1995
Date of revision:
Contact details of provider:
Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de
Privatization; Vouchers; Economic Reform;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994.
"Renegotiation Design with Unverifiable Information,"
Econometric Society, vol. 62(2), pages 257-82, March.
- Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1994. "Renegotiation design with unverifiable information," ULB Institutional Repository 2013/9591, ULB -- Universite Libre de Bruxelles.
- Nöldeke, Georg & Schmidt, Klaus M., 1995.
"Option contracts and renegotiation: A solution to the Hold-Up Problem,"
Munich Reprints in Economics
19329, University of Munich, Department of Economics.
- Georg Noldeke & Klaus M. Schmidt, 1995. "Option Contracts and Renegotiation: A Solution to the Hold-Up Problem," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 163-179, Summer.
- Georg Nöldeke & Klaus M. Schmidt, 1992. "Option Contracts and Renegotiation - A Solution to the Hold-Up Problem," Discussion Paper Serie A 417, University of Bonn, Germany, revised Aug 1993.
- Dieter Bös, 1996. "Incomplete Contracting and Target-Cost Pricing," Discussion Paper Serie A 524, University of Bonn, Germany.
- Tirole, Jean, 1994.
"The Internal Organization of Government,"
Oxford Economic Papers,
Oxford University Press, vol. 46(1), pages 1-29, January.
- Bos, Dieter & Lulfesmann, Christoph, 1996. " The Hold-Up Problem in Government Contracting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(1), pages 53-74, March.
- Hardman Moore, John & Hart, Oliver, 1985.
"Incomplete Contracts and Renegotiation,"
CEPR Discussion Papers
60, C.E.P.R. Discussion Papers.
- Chung, Tai-Yeong, 1991. "Incomplete Contracts, Specific Investments, and Risk Sharing," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 1031-42, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (BGSE Office).
If references are entirely missing, you can add them using this form.