AbstractWe examine regulation as a repeated game between a regulator and a utility facing a Markovian sequence of demands. Sunk capital would be expropriated by a regulator concerned only with the short-run interests of consumers. There exist rate of return regulatory policies supporting efficient investment paths with zero expected profits as subgame perfect Nash equilibria, but these policies must under-reward capital in some states of the world. Carefully designed nonlinear price regulation can improve on these equilibrium outcomes, although at higher consumer costs, and only if state-contingent transfers are feasible.
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Bibliographic InfoPaper provided by University of California at Berkeley in its series Economics Working Papers with number 8879.
Date of creation: 01 Jun 1988
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Other versions of this item:
- Gilbert, Richard J. & Newbery, David M., 1988. "Regulation Games," Department of Economics, Working Paper Series qt50s6h8c6, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Gilbert, Richard & Newbery, David M G, 1988. "Regulation Games," CEPR Discussion Papers 267, C.E.P.R. Discussion Papers.
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