Optimal regulation of lumpy investments
Abstract
We study optimal timing of regulated investment in a real options setting, in which the regulated monopolist has private information on investment costs. In solving the ensuing agency problem, the regulator trades off investment timing inefficiency against the dead-weight loss arising from high price caps. We show that optimal regulation is implemented by a price cap that decreases as a function of the monopolist's chosen investment time. � � � � � �Download Info
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Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 214.Length:
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:cpb:discus:214
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Keywords:Other versions of this item:
- Zwart, G. & Broer, D.P., 2012. "Optimal Regulation of Lumpy Investments," Discussion Paper 2012-020, Tilburg University, Tilburg Law and Economic Center.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
References
References listed on IDEASPlease 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.:
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"Profit Sharing and Investment by Regulated Utilities: a Welfare Analysis,"
"Marco Fanno" Working Papers
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