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Natural monopoly regulation in the presence of cost misreporting

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  • Kevin Currier

Abstract

This paper explores the implications of asymmetric cost information within the context of a regulated natural monopoly. The paper provides a unifying framework for the analysis of cost padding and exaggeration, both of which are referred to simply as misreporting of costs. The paper studies the incentives embedded in the regulatory regime itself and shows how simple comparative statics may be useful in detecting falsification of the cost report which the regulated firm must submit to the regulator. Copyright International Atlantic Economic Society 2004

Suggested Citation

  • Kevin Currier, 2004. "Natural monopoly regulation in the presence of cost misreporting," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 32(1), pages 49-61, March.
    • Handle: RePEc:kap:atlecj:v:32:y:2004:i:1:p:49-61
    DOI: 10.1007/BF02298618
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    References listed on IDEAS

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    1. Baron, David P., 1989. "Design of regulatory mechanisms and institutions," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 24, pages 1347-1447, Elsevier.
    2. Braeutigam, Ronald R & Panzar, John C, 1993. "Effects of the Change from Rate-of-Return to Price-Cap Regulation," American Economic Review, American Economic Association, vol. 83(2), pages 191-198, May.
    3. Joskow, Paul L. & Rose, Nancy L., 1989. "The effects of economic regulation," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 25, pages 1449-1506, Elsevier.
    4. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
    5. Braeutigam, Ronald R., 1989. "Optimal policies for natural monopolies," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 23, pages 1289-1346, Elsevier.
    6. David Sappington, 1980. "Strategic Firm Behavior under a Dynamic Regulatory Adjustment Process," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 360-372, Spring.
    7. R. Schmalensee & R. Willig (ed.), 1989. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 1, number 1.
    8. Harris Milton & Townsend, Robert M, 1981. "Resource Allocation under Asymmetric Information," Econometrica, Econometric Society, vol. 49(1), pages 33-64, January.
    9. Robert D. Tollison & Richard E. Wagner, 1991. "The Logic of Natural Monopoly Regulation," Eastern Economic Journal, Eastern Economic Association, vol. 17(4), pages 483-490, Oct-Dec.
    10. Donald, Stephen G & Sappington, David E M, 1997. "Choosing among Regulatory Options in the United States Telecommunications Industry," Journal of Regulatory Economics, Springer, vol. 12(3), pages 227-243, November.
    11. Kidokoro, Yukihiro, 1998. "Rate of return regulation and rate base valuation," Regional Science and Urban Economics, Elsevier, vol. 28(5), pages 629-654, September.
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    Cited by:

    1. Kevin Currier, 2006. "Quality-Adjusted Laspeyres Price Caps: A Graphical Analysis," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 34(4), pages 481-490, December.

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