Using Forward Contracts to Reduce Regulatory Capture
AbstractA fully unbundled, regulated network firm of unknown efficiency level can untertake unobservable effort to increase the likelihood of low downstream prices, e.g. by facilitating downstream competition. To incentivize such effort, the regulator can use an incentive scheme paying transfers to the firm contingent on realized downstream prices. Alternatively, the regulator can force the firm to sell the following forward contracts: the firm pays the downstream price to the owners of a contract, but recieves the expected value of the contracts when selling them to a competivitve financial market. We compare the two regulatory tools with respect to regulatory capture: if the regulator can be bribed to suppress information on the underlying state of the world (the basic propability of high downstream prices, or the type of the firm), optimal regulation uses forward contracts only.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 320.
Date of creation: Feb 2010
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More information through EDIRC
incentive regulation; regulatory capture; virtual power plants;
Other versions of this item:
- Felix Höffler & Sebastian Kranz, 2011. "Using Forward Contracts to Reduce Regulatory Capture," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2011_09, Max Planck Institute for Research on Collective Goods.
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-22 (All new papers)
- NEP-BEC-2010-05-22 (Business Economics)
- NEP-CTA-2010-05-22 (Contract Theory & Applications)
- NEP-IND-2010-05-22 (Industrial Organization)
- NEP-MIC-2010-05-22 (Microeconomics)
- NEP-REG-2010-05-22 (Regulation)
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