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Profit Sharing and Investment by Regulated Utilities: a Welfare Analysis

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  • Michele Moretto

    ()
    (Università di Padova)

  • Paolo M. Panteghini

    (Università di Brescia)

  • Carlo Scarpa

    (Università di Brescia)

Abstract

We analyse the effects of different regulatory schemes (price cap and profit sharing) on a firm’s investment of endogenous size. Using a real option approach in continuous time, we show that profit sharing does not delay a firm’s start-up investment relative to a pure price cap scheme. Profit sharing does not necessarily affect total investment either, if the threshold for profit sharing is high enough. Only a profit sharing intervening for low profit levels may delay further investments. We also evaluate the effects of profit sharing on social welfare, determining the level of profit that should optimally trigger tighter regulation: profit sharing should be less stringent in sectors where there are bigger investment opportunities.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0059.

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Length: 36 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:pad:wpaper:0059

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Keywords: regulation; investment; profit sharing; real options; RPI-x;

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References

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Citations

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Cited by:
  1. Alessandro Fedele & Paolo M. Panteghini & Sergio Vergalli, 2011. "Optimal Investment and Financial Strategies under Tax‐Rate Uncertainty," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 12(4), pages 438-468, November.
  2. Francesco Menoncin & Paolo Panteghini, 2009. "Retrospective Capital Gains taxation in the real world," Working Papers, University of Brescia, Department of Economics 0910, University of Brescia, Department of Economics.
  3. Bisin, A. & Geanakoplos, J.D. & Gottardi, P. & Minelli, E. & Polemarchakis, H., 2011. "Markets and contracts," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 279-288.
  4. Peter Broer & Gijsbert Zwart, 2013. "Optimal regulation of lumpy investments," Journal of Regulatory Economics, Springer, Springer, vol. 44(2), pages 177-196, October.
  5. Alessandro Fedele & Raffaele Miniaci, 2009. "Do social enterprises finance their investments differently from for-profit firms? The case of social residential services in Italy," Working Papers, University of Brescia, Department of Economics 0911, University of Brescia, Department of Economics.
  6. Rosella Levaggi & Francesco Menoncin, 2009. "Decentralized provision of merit and impure public goods," Working Papers, University of Brescia, Department of Economics 0909, University of Brescia, Department of Economics.
  7. Alessandra Del Boca & Michele Fratianni & Franco Spinelli & Carmine Trecroci, 2008. "The Phillips Curve and the Italian Lira, 1861-1998," Mo.Fi.R. Working Papers, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences 8, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  8. Martin Meier & Enrico Minelli & Herakles Polemarchakis, 2014. "Competitive markets with private information on both sides," Economic Theory, Springer, Springer, vol. 55(2), pages 257-280, February.
  9. Ingo Vogelsang, 2010. "Incentive Regulation, Investments and Technological Change," CESifo Working Paper Series 2964, CESifo Group Munich.
  10. Alessandro Fedele & Francesco Liucci & Andrea Mantovani, 2009. "Credit availability in the crisis: the European investment bank group," Working Papers, University of Brescia, Department of Economics 0913, University of Brescia, Department of Economics.
  11. Amedeo Fossati & Rosella Levaggi, 2008. "Delay is not the answer: waiting time in health care & income redistribution," Working Papers, University of Brescia, Department of Economics 0801, University of Brescia, Department of Economics.

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