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Evaluating the Performance of Non-Bayesian Regulatory Mechanisms

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Author Info

  • Lyon, T.P.

Abstract

This paper compares the performance of two prominent non-Bayesian regulatory mechanisms: Sappington and Sibley's (1988) Incremental Surplus Subsidy (ISS) and Hagerman's (1990) refinement of the Vogelsang-Finsinger (1979) mechanism. The two mechanisms are shown to induce identical, non-zero levels of "abuse"--unproductive expenses that benefit the firm--though neither induces pure waste. ISS pareto-dominates the Hagerman mechanism when lump-sum transfers to the firm are non-distortionary, but the Hagerman mechanism generates greater welfare and consumer surplus when the distortionary effects of transfers are large. For a wide range of intermediate parameter values, the quantitative difference in performance between the two mechanisms is surprisingly modest. Copyright 1996 by Kluwer Academic Publishers

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Bibliographic Info

Paper provided by Indiana - Center for Econometric Model Research in its series Papers with number 93-010.

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Length: 22 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:fth:indian:93-010

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Postal: Indiana University, Center for Econometric Model Research, Department of Economics; Bloomington, IN 47405.
Phone: 812-855-1021
Fax: 812-855-3736
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Web page: http://www.indiana.edu/~econweb/
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Keywords: economic models;

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Cited by:
  1. Ingo Vogelsang, 2006. "Electricity Transmission Pricing and Performance-based Regulation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 97-126.

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