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Motivating regulated suppliers to assess alternative technologies, protocols, and capital structures

Author

Listed:
  • Jamison, Mark
  • Mandy, David M.
  • Sappington, David E.M.

Abstract

Regulated firms can be tempted to adopt cost-saving technologies, operating procedures, or capital structures without fully assessing the associated risks. We demonstrate how a regulator can costlessly preclude such behavior if she can impose substantial penalties on the firm in the event of poor realized performance. When these penalties are more limited, the regulated firm secures rent from its privileged ability to assess the riskiness of potential technologies. If these penalties are sufficiently limited, the regulator optimally affords the firm no choice among technologies. Consequently, the regulated firm prefers moderate penalties to very limited penalties.

Suggested Citation

  • Jamison, Mark & Mandy, David M. & Sappington, David E.M., 2014. "Motivating regulated suppliers to assess alternative technologies, protocols, and capital structures," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 13-22.
  • Handle: RePEc:eee:indorg:v:37:y:2014:i:c:p:13-22
    DOI: 10.1016/j.ijindorg.2014.07.002
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    References listed on IDEAS

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    1. Gianni De Fraja & Clive Stones, 2004. "Risk and Capital Structure in the Regulated Firm," Journal of Regulatory Economics, Springer, vol. 26(1), pages 69-84, July.
    2. Yaron Yehezkel, 2014. "Motivating a Supplier to Test Product Quality," Journal of Industrial Economics, Wiley Blackwell, vol. 62(2), pages 309-345, June.
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    Cited by:

    1. Antonio Estache & Tomas Serebrisky & Liam Wren-Lewis, 2015. "Financing infrastructure in developing countries," Oxford Review of Economic Policy, Oxford University Press, vol. 31(3-4), pages 279-304.

    More about this item

    Keywords

    Regulatory policy design; Information acquisition; Inducing efficient technologies;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • G3 - Financial Economics - - Corporate Finance and Governance

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