Advanced Search
MyIDEAS: Login to save this paper or follow this series

Dynamic Regulation Design Without Payments: Timing is Everything

Contents:

Author Info

  • Ralph Boleslavsky

    (Department of Economics, University of Miami)

  • David L. Kelly

    (Department of Economics, University of Miami)

Abstract

We consider a two period model of optimal regulation of a firm subject to marginal compliance cost shocks. The regulator faces an asymmetric information problem: the firm knows current compliance costs, but the regulator does not. Both the regulator and the firm are uncertain about future costs. In our basic framework, the regulator may not offer payments to the firm; we show that the regulator can vary the strength of regulation over time to induce the firm to reveal its costs and increase welfare. In the optimal mechanism, the regulator offers stronger (weaker) regulation in the first period and weaker (stronger) regulation in the second period if the firm reports low (high) compliance costs in the first period. Low cost firms expect compliance costs to rise in the future, and thus prefer weaker regulation in the second period. High cost firms expect costs to fall in the future and thus prefer regulation which becomes more strict over time. Thus the regulator offers the low (high) cost firms slightly weaker (stronger) regulation in the second period in exchange for much stronger (weaker) regulation in the first period. We refer to our dynamic mechanism as “timing” the regulation. If the regulator can make payments, then the optimal mechanism to some degree times the regulation as long as a positive cost of funds exists. If the cost of funds is high enough, then under the optimal mechanism the regulator will not use payments and only use our timing mechanism

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://moya.bus.miami.edu/~dkelly/papers/elicit.pdf
File Function: First version, 2011
Download Restriction: no

Bibliographic Info

Paper provided by University of Miami, Department of Economics in its series Working Papers with number 2011-4.

as in new window
Length: 46 pages
Date of creation: 2011
Date of revision:
Publication status: Forthcoming: Working
Handle: RePEc:mia:wpaper:2011-4

Contact details of provider:
Postal: P.O. Box 248126, Coral Gables, FL 33124-6550
Phone: (305) 284-5540
Fax: (305) 284-2985
Web page: http://www.bus.miami.edu/faculty-and-research/academic-departments/economics/index.html
More information through EDIRC

Related research

Keywords: regulation design; environmental regulation design; hybrid policies; dynamic contracts.;

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:mia:wpaper:2011-4. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher Parmeter).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.