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Efficient Cost Passthrough

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  • Holzleitner, Christian

Abstract

This paper analyzes how far a regulated price should be adjusted to realized marginal cost in a stochastic environment. Lyon (1996) shows that partial cost passthrough will improve welfare relative to an exogenously fixed price cap even if incentives for effort supply are reduced. In this paper a simple regulatory mechanism is presented that achieves full cost passthrough and at the same time provides efficient incentives for effort supply. Copyright 2001 by Kluwer Academic Publishers

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  • Holzleitner, Christian, 2001. "Efficient Cost Passthrough," Journal of Regulatory Economics, Springer, vol. 20(1), pages 91-97, July.
    • Handle: RePEc:kap:regeco:v:20:y:2001:i:1:p:91-97
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