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Dynamic Firm Regulation with Endogenous Profit-Sharing

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  • Michele Moretto
  • Paola Valbonesi

Abstract

To avoid the extremely high profit levels found in recent experiences with price cap regulation, some regulators have applied a profit-sharing (PS) rule that revises prices to the benefit of consumers. This paper investigates the conditions under which a regulator can implement such a PS scheme, having contract closure as outside option if the firm's profits are excessive. We determine both the level of profits that triggers the PS and the consequent price adjustment endogenously. We then explore the PS dynamic efficiency in the repeated regulator-firm relationship.

Suggested Citation

  • Michele Moretto & Paola Valbonesi, "undated". "Dynamic Firm Regulation with Endogenous Profit-Sharing," Working Papers ubs0410, University of Brescia, Department of Economics.
    • Handle: RePEc:ubs:wpaper:ubs0410
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    File URL: http://fausto.eco.unibs.it/~segdse/paper_pdf/pdf0410.pdf
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    Cited by:

    1. Roberto Casarin & Carmine Trecroci, 2006. "Business Cycle and Stock Market Volatility: A Particle Filter Approach," Working Papers ubs0603, University of Brescia, Department of Economics.

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