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Hierarchical Regulatory Control

Author

Listed:
  • Joel S. Demski
  • David E.M. Sappington

Abstract

We consider a regulatory problem in which there is a hierarchy of control. Consumers (or Congress) direct the activities of a regulator, who, in turn, oversees the activities of a monopolistic firm. Both the regulator and the firm are self-interested actors. The regulator must be motivated to acquire the expertise that allows him to control the firm's activities more effectively. The firm must be motivated to produce at minimal cost to consumers. We characterize the distortions in the firm's activities that are optimally induced to control more effectively the activities of the firm and the regulator.

Suggested Citation

  • Joel S. Demski & David E.M. Sappington, 1987. "Hierarchical Regulatory Control," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 369-383, Autumn.
  • Handle: RePEc:rje:randje:v:18:y:1987:i:autumn:p:369-383
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    Cited by:

    1. Spiller, Pablo T., 2013. "Transaction cost regulation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 232-242.
    2. Batabyal, Amitrajeet A, 1998. "On land use, minerals development, and institutional design in the American west," Resources Policy, Elsevier, vol. 24(3), pages 139-146, September.
    3. David E. M. Sappington, 1991. "Incentives in Principal-Agent Relationships," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 45-66, Spring.
    4. Boyce, John R. & Hollis, Aidan, 2005. "Governance of electricity transmission systems," Energy Economics, Elsevier, vol. 27(2), pages 237-255, March.
    5. Jack, William, 1992. "Power sharing and pollution control : coordinating policies among levels of government," Policy Research Working Paper Series 887, The World Bank.
    6. Guangliang Ye & Jinhua Zhao, 2016. "Environmental Regulation in a Mixed Economy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 273-295, September.
    7. Jin-Li Hu & Chung-Huang Huang & Wei-Kai Chu, 2004. "Bribery, hierarchical government, and incomplete environmental enforcement," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 6(3), pages 177-196, September.
    8. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
    9. Richard Meade, 2015. "Incentives, Efficiency and Quality in Regulated Monopolies under Customer Ownership," Working Papers 2015-05, Auckland University of Technology, Department of Economics.

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