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Public firm incentives under asymmetric information and prospect of deregulation and privatization

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  • Huric Larsen, J.F.

Abstract

Governments dislike poorly performing public firms and often see deregulation and privatisation as a way to improve performance and social welfare. From a theoretical point of view poor performance may be due to information asymmetries between the informed public firm and the relatively uninformed regulator. The point of view in the paper is that the information asymmetries that makes the regulator unable to achieve first best during regulation, is also the cause of deregulation and privatization failure. The effect on public firm incentives from introducing deregulation as a consequence from choosing a specific regulation contract is analysed.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39351.

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Date of creation: 01 Mar 2012
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Handle: RePEc:pra:mprapa:39351

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Keywords: Regulation; public firms; incentives; optimal deregulation; asymmetric information; deregulation; privatization; contracts; public policy;

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  1. David E. M. Sappington & Joseph E. Stiglitz, 1987. "Privatization, information and incentives," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(4), pages 567-585.
  2. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
  3. Hunt, Lester C & Lynk, Edward L, 1995. "Privatisation and Efficiency in the UK Water Industry: An Empirical Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(3), pages 371-88, August.
  4. David P. Baron & David Besanko, 1984. "Regulation, Asymmetric Information, and Auditing," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 447-470, Winter.
  5. Laffont, Jean-Jacques & Tirole, Jean., 1988. "Adverse Selection and Renegotiation in Procurement," Working Papers 665, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
  7. Schmitz, Patrick W., 2000. "Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered," MPRA Paper 13447, University Library of Munich, Germany.
  8. Jean Tirole & Jean-Jaques Laffont, 1985. "Using Cost Observation to Regulate Firms," Working papers 368, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Perotti, Enrico C, 1995. "Credible Privatization," American Economic Review, American Economic Association, vol. 85(4), pages 847-59, September.
  10. Laffont, Jean-Jacques & Tirole, Jean, 1988. "The Dynamics of Incentive Contracts," Econometrica, Econometric Society, vol. 56(5), pages 1153-75, September.
  11. Dana Jr. James D., 1993. "The Organization and Scope of Agents: Regulating Multiproduct Industries," Journal of Economic Theory, Elsevier, vol. 59(2), pages 288-310, April.
  12. John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262720116, December.
  13. Armstrong, Mark, 1999. "Optimal Regulation with Unknown Demand and Cost Functions," Journal of Economic Theory, Elsevier, vol. 84(2), pages 196-215, February.
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