Regulation of two-part tariffs and quality choice under uncertainty
AbstractMany utilities are regulated with respect to prices and quality, and there is uncertainty about market conditions when regulation is chosen. We consider four different regulation regimes, based on two-part tariffs: A cap on the fixed fee is combined with either (i) quantity and quality standards, (ii) price and quality standards, (iii) price standards and quality bonuses, or (iv) quantity standards and quality bonuses. It turns out that there is a clear ranking of the four regimes in terms of expected welfare. The best results are obtained by regime (iv) with fixed fee caps, quantity standards, and quality bonuses.
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Bibliographic InfoPaper provided by Center for Network Industries and Infrastructure (CNI) in its series Working Papers with number 2007-04.
Length: 32 pages
Date of creation: 2007
Date of revision:
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Quality regulation; two-part tariffs; standards; bonuses; uncertainty;
Find related papers by JEL classification:
- D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
- L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-07-07 (All new papers)
- NEP-MIC-2007-07-07 (Microeconomics)
- NEP-URE-2007-07-07 (Urban & Real Estate Economics)
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