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Regulation Games

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Author Info

  • Gilbert, Richard J.
  • Newbery, David M.

Abstract

We examine regulation as a repeated game between a regulator and a utility facing a Markovian sequence of demands. Sunk capital would be expropriated by a regulator concerned only with the short-run interests of consumers. There exist rate of return regulatory policies supporting efficient investment paths with zero expected profits as subgame perfect Nash equilibria, but these policies must under-reward capital in some states of the world. Carefully designed nonlinear price regulation can improve on these equilibrium outcomes, although at higher consumer costs, and only if state-contingent transfers are feasible.

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Bibliographic Info

Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt50s6h8c6.

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Date of creation: 14 Jun 1988
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Handle: RePEc:cdl:econwp:qt50s6h8c6

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Related research

Keywords: regulation; utilities; repeated game; Social and Behavioral Sciences;

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Cited by:
  1. Severin Borenstein & Andrea Shepard, 1993. "Dynamic Pricing in Retail Gasoline Markets," NBER Working Papers 4489, National Bureau of Economic Research, Inc.
  2. Flacher, David & Jennequin, Hugues & Lorenzi, Jean-Hervé, 2006. "Innovation, Investment and Regulation: What are the Options for Regulation in the Near Future?," MPRA Paper 3573, University Library of Munich, Germany.
  3. Giuliana Palumbo, 2000. "Decision Rules and Optimal Delegation of Information Acquisition," CSEF Working Papers 42, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  4. Toru Hattori & Jamasb, T. & Pollitt, M.G., 2002. "Relative Performance of UK and Japanese Electricity Distribution Systems 1985-1998: Lessons for Incentive Regulation," Cambridge Working Papers in Economics 0212, Faculty of Economics, University of Cambridge.
  5. J.A. den Hertog, 2010. "Review of economic theories of regulation," Working Papers 10-18, Utrecht School of Economics.
  6. Zhang, Yin-Fang & Kirkpatrick, Colin & Parker, David, 2002. "Electricity Sector Reform in Developing Countries: An Econometric Assessment of the Effects of Privatisation, Competition and Regulation," Centre on Regulation and Competition (CRC) Working papers 30593, University of Manchester, Institute for Development Policy and Management (IDPM).
  7. repec:cam:camdae:1324 is not listed on IDEAS
  8. Jean-Jacques Laffont, 2004. "Management of Public Utilities in China," Annals of Economics and Finance, Society for AEF, vol. 5(2), pages 185-210, November.
  9. Eduardo Saavedra, . "Opportunistic Behavior and Legal Disputes in the Chilean Electricity Sector," ILADES-Georgetown University Working Papers inv130, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.

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