Financing infrastructure under budget constraints
AbstractIn 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 InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003037.
Date of creation: 00 May 2003
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regulation; asymmetric information; budget constraint;
Other versions of this item:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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