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Good Regulatory Regimes


  • Richard Schmalensee


Assuming simple functional forms, numerical methods are used to analyze linear regulatory rules that include cost-plus and price-cap regimes. Regulators are assumed to observe actual cost, but not the disutility of cost reduction, and are assumed unable to impose taxes or make transfers. Best linear regimes depend importantly on the level and form of uncertainty, the regulatory objective function, and the firm profitability constraint. Under uncertainty, regimes in which price depends in part on actual cost generally substantially outperform pure price caps, particularly in terms of consumers' surplus.

Suggested Citation

  • Richard Schmalensee, 1989. "Good Regulatory Regimes," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 417-436, Autumn.
  • Handle: RePEc:rje:randje:v:20:y:1989:i:autumn:p:417-436

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    References listed on IDEAS

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    1. Dairo Estrada A. & Sandra V. Rozo V., 2007. "Spatial competition in the Colombian deposit market," COYUNTURA ECONÓMICA, FEDESARROLLO, December.
    2. Aouam, Tarik & Muthuraman, Kumar & Rardin, Ronal L., 2016. "Robust optimization policy benchmarks and modeling errors in natural gas," European Journal of Operational Research, Elsevier, vol. 250(3), pages 807-815.
    3. Bernstein, Jeffrey I & Sappington, David E M, 1999. "Setting the X Factor in Price-Cap Regulation Plans," Journal of Regulatory Economics, Springer, vol. 16(1), pages 5-25, July.
    4. T. N. Srinivasan, 2002. "Privatisation, Regulation, and Competition in South Asia," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(4), pages 389-422.
    5. David E. M. Sappington & Dennis L. Weisman, 2016. "The disparate adoption of price cap regulation in the U.S. telecommunications and electricity sectors," Journal of Regulatory Economics, Springer, vol. 49(2), pages 250-264, April.
    6. Yoshitaka Fukui & Kyoji Oda, 2012. "Discussion Paper: Who Should Take Responsibility for Unexpected Interest Changes? Lesson from the Privatization of Japanese Railroad System," Networks and Spatial Economics, Springer, vol. 12(2), pages 263-278, June.
    7. Amir Jahan Khan, 2014. "Structure and Regulation of the Electricity Networks in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 53(4), pages 505-530.
    8. Peter Broer & Gijsbert Zwart, 2013. "Optimal regulation of lumpy investments," Journal of Regulatory Economics, Springer, vol. 44(2), pages 177-196, October.
    9. Mark Armstrong & David E.M. Sappington, 2006. "Regulation, Competition and Liberalization," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 325-366, June.
    10. Dieter Bös, 2001. "Regulation: Theory and Concepts," Bonn Econ Discussion Papers bgse32_2001, University of Bonn, Germany.
    11. Galal, Ahmed & Nauriyal, Bharat, 1995. "Regulating telecommunications in developing countries : outcomes, incentives, and commitment," Policy Research Working Paper Series 1520, The World Bank.
    12. Philippe Gagnepain & Marc Ivaldi & David Martimort, 2013. "The Cost of Contract Renegotiation: Evidence from the Local Public Sector," American Economic Review, American Economic Association, vol. 103(6), pages 2352-2383, October.
    13. Ingo Vogelsang, 2006. "Electricity Transmission Pricing and Performance-based Regulation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 97-126.
    14. Daniel Herold, 2017. "The Impact of Incentive Pay on Corporate Crime," MAGKS Papers on Economics 201752, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    15. Harvey James & Derek Johnson, 2002. "Understanding Regulatory Environments and their Impact on Economic Change," Industrial Organization 0202001, EconWPA.
    16. John E. Kwoka, 1993. "Implementing price cops in telecommunications," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(4), pages 726-752.
    17. Marques, Vítor & Bento, Nuno & Costa, Paulo Moisés, 2014. "The “Smart Paradox”: Stimulate the deployment of smart grids with effective regulatory instruments," Energy, Elsevier, vol. 69(C), pages 96-103.
    18. Richard Green & Jonathan Haskel, 2004. "Seeking a Premier-League Economy The Role of Privatization," NBER Chapters,in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000, pages 63-108 National Bureau of Economic Research, Inc.
    19. Andrés Gomez-Lobo, 2017. "The efficiency case for transit subsidies in the presence of a ‘soft’ budget constraint," Working Papers wp447, University of Chile, Department of Economics.
    20. Jouravlev, Andrei & Lee, Terence R., 1998. "Regulating the private provision of drinking water and sanitation services," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    21. Bertsch, Joachim & Hagspiel, Simeon, 2015. "Regulation of non-marketed outputs and substitutable inputs," EWI Working Papers 2015-6, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    22. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
    23. J.A. den Hertog, 2010. "Review of economic theories of regulation," Working Papers 10-18, Utrecht School of Economics.
    24. repec:ces:ifodic:v:4:y:2006:i:2:p:14567496 is not listed on IDEAS

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