Evaluating the Performance of Non-Bayesian Regulatory Mechanisms
AbstractThis 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 InfoPaper provided by Indiana - Center for Econometric Model Research in its series Papers with number 93-010.
Length: 22 pages
Date of creation: 1993
Date of revision:
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Postal: Indiana University, Center for Econometric Model Research, Department of Economics; Bloomington, IN 47405.
Web page: http://www.indiana.edu/~econweb/
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Other versions of this item:
- Lyon, Thomas P, 1996. "Evaluating the Performance of Non-Bayesian Regulatory Mechanisms," Journal of Regulatory Economics, Springer, vol. 9(1), pages 41-60, January.
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- 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.
- Ingo Vogelsang, 2005. "Electricity Transmission Pricing and Performance-Based Regulation," CESifo Working Paper Series 1474, CESifo Group Munich.
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