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Incomplete contracting and price regulation

  • Boes, Dieter
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    This paper deals with price regulation of a monopolistic distribution grid which sells a license to some retailer. The regulator aims at attaining efficient sale of the license and efficient relationship-specific investments of the agents. The first best can be attained by a sequential regulatory mechanism which gives the seller an option to grant the license but allows the buyer to make counteroffers. This sequential mechanism runs counter to the usual price-cap idea since possible upward but never downward renegotiation of the regulated prices is the vehicle to attain the first best.

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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfa/bonsfa593.pdf
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    File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfa/bonsfa593.ps
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    Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 593.

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    Length: pages
    Date of creation:
    Date of revision: Apr 1999
    Handle: RePEc:bon:bonsfa:593
    Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
    Fax: +49 228 73 6884
    Web page: http://www.bgse.uni-bonn.de

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    1. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July.
    2. Cremer, Jacques, & Riordan, Michael H, 1985. "A Sequential Solution to the Public Goods Problem," Econometrica, Econometric Society, vol. 53(1), pages 77-84, January.
    3. Jean Tirole & Jean-Jaques Laffont, 1985. "Using Cost Observation to Regulate Firms," Working papers 368, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Dieter Bös, 1996. "Incomplete Contracting and Target-Cost Pricing," Discussion Paper Serie A 524, University of Bonn, Germany.
    5. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation: A solution to the Hold-Up Problem," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
    6. d'Aspremont, Claude & Gerard-Varet, Louis-Andre, 1979. "Incentives and incomplete information," Journal of Public Economics, Elsevier, vol. 11(1), pages 25-45, February.
    7. Ausubel, Lawrence M. & Deneckere, Raymond J., 1989. "A direct mechanism characterization of sequential bargaining with one-sided incomplete information," Journal of Economic Theory, Elsevier, vol. 48(1), pages 18-46, June.
    8. Rogerson, William P, 1992. "Contractual Solutions to the Hold-Up Problem," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 777-93, October.
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