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Investment, dynamic consistency and the sectoral regulator's obective

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  • Brito, Duarte
  • Pereira, Pedro
  • Vareda, João

Abstract

We explore the separation of powers between the legislative and the executive branch of government as a way of overcoming the dynamic consistency problem of regulatory policy towards investment. We model the industry as a regulated duopoly. The incumbent is a vertically integrated firm that owns a wholesaler and a retailer. The entrant owns a retailer. Either retailer needs access to the input produced by the wholesaler to operate. The incumbent can make an investment that improves the quality of the input produced by the wholesaler. The regulator sets the access price and is unable to commit. The legislator sets the regulator's objective function and is able to commit. We derive general conditions under which having the legislator distort the regulator's objective function away from social welfare allows increasing the range of parameter values for which it is possible to induce socially desirable investment. --

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Bibliographic Info

Paper provided by International Telecommunications Society (ITS) in its series 8th Asia-Pacific Regional ITS Conference, Taipei 2011: Convergence in the Digital Age with number 52341.

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Date of creation: 2011
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Handle: RePEc:zbw:itsp11:52341

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Web page: http://www.its2011taiwan.com/

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Keywords: Investment; Dynamic Consistency; Regulator's Objective;

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Cited by:
  1. Ingo Vogelsang, 2013. "The Endgame of Telecommunications Policy? A Survey," CESifo Working Paper Series 4545, CESifo Group Munich.

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