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Financing infrastructure under budget constraints

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Author Info

  • GAUTIER, Axel
  • MITRA, Manipushpak

Abstract

In this paper we consider the problem of financing infrastructure when the regulator faces a budget constraint. The optimal budget-constrained mechanism satisfies four properties. The first property is bunching at the top, that is the more efficient firms produce the same quantity irrespective of their costs. The second property is separability of less efficient firms. The third property is that the mechanism is a third best one, that is, the optimal budget constrained output is strictly lower than the second best output for any given type. Finally, if the budget constraint is too strong, then we have full bunching.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003037.

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Date of creation: 00 May 2003
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Handle: RePEc:cor:louvco:2003037

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Related research

Keywords: regulation; asymmetric information; budget constraint;

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  1. Axel Gautier, 2004. "Regulation under Financial Constraints," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 75(4), pages 645-656, December.
  2. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
  3. KLINGER MONTEIRO , Paulo & PAGE, Frank H. Jr., 1997. "Optimal selling mechanisms for multiproduct monopolists : incentive compatibility in the presence of budget constraints," CORE Discussion Papers 1997011, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. repec:att:wimass:9415 is not listed on IDEAS
  5. Laffont, Jean-Jacques & Robert, Jacques, 1996. "Optimal auction with financially constrained buyers," Economics Letters, Elsevier, vol. 52(2), pages 181-186, August.
  6. repec:att:wimass:9609 is not listed on IDEAS
  7. Che, Y.K. & Gale, I., 1995. "The Optimal Mechanism for Selling to Budget-Constrained Consumers," Working papers 9415r, Wisconsin Madison - Social Systems.
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