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The Distributional Efficiency of Alternative Regulatory Regimes: A Real Option Approach


  • Panteghini, Paolo
  • Scarpa, Carlo


This paper studies the effects of regulatory constraints on firm's irreversible investment decisions. The RPI - x rule is compared to a profit sharing rule, which increases the x factor in case profits go beyond a given level. When the firm has an option to delay investment, these rules have the same impact on investment choices. As profit sharing has a greater ability to extract rents, however, it is more efficient than the RPI - x rule. Copyright 2003 by Kluwer Academic Publishers

Suggested Citation

  • Panteghini, Paolo & Scarpa, Carlo, 2003. "The Distributional Efficiency of Alternative Regulatory Regimes: A Real Option Approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(4), pages 403-418, August.
  • Handle: RePEc:kap:itaxpf:v:10:y:2003:i:4:p:403-18

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    References listed on IDEAS

    1. Sinn, Hans-Werner, 1990. "Tax harmonization and tax competition in Europe," European Economic Review, Elsevier, vol. 34(2-3), pages 489-504, May.
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    3. Dennis Snower, 1996. "The modern welfare state: Problems and suggested reforms," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 23(3), pages 207-226, October.
    4. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
    5. Arie Kapteyn & Klaas de Vos, 1999. "Social Security and Retirement in the Netherlands," NBER Chapters,in: Social Security and Retirement around the World, pages 269-303 National Bureau of Economic Research, Inc.
    6. Ricardo J. Caballero & Mohamad L. Hammour, 1998. "The Macroeconomics of Specificity," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 724-767, August.
    7. Lindbeck, Assar, 1995. "Hazardous Welfare-State Dynamics," American Economic Review, American Economic Association, vol. 85(2), pages 9-15, May.
    8. Sinn, Hans-Werner, 1997. "The selection principle and market failure in systems competition," Journal of Public Economics, Elsevier, vol. 66(2), pages 247-274, November.
    9. Mark V. Pauly, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 44-62.
    10. Bovenberg, A.L., 1997. "Dutch employment growth : An analysis," Other publications TiSEM e57bc89a-f3b7-4c07-a8db-c, Tilburg University, School of Economics and Management.
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    Cited by:

    1. Moretto, Michele & Panteghini, Paolo M. & Scarpa, Carlo, 2008. "Profit sharing and investment by regulated utilities: A welfare analysis," Review of Financial Economics, Elsevier, vol. 17(4), pages 315-337, December.
    2. Michele Moretto & Paolo M. Panteghini & Carlo Scarpa, 2003. "Investment Size and Firm’s Value Under Profit Sharing Regulation," Working Papers 2003.80, Fondazione Eni Enrico Mattei.
    3. Paolo M. Panteghini & Carlo Scarpa, 2003. "Irreversible Investments and Regulatory Risk," CESifo Working Paper Series 934, CESifo Group Munich.
    4. Stroffolini, Francesca, 2012. "Access profit-sharing regulation with information acquisition and transmission," Research in Economics, Elsevier, vol. 66(2), pages 161-174.

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