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Regulation of two-part tariffs and quality choice under uncertainty

Author

Listed:
  • Achim I. Czerny

    () (Workgroup for Infrastructure Policy (WIP), Technische Universit├Ąt Berlin)

  • Kay Mitusch

    () (Workgroup for Infrastructure Policy (WIP), Technische Universit├Ąt Berlin)

Abstract

Many utilities are regulated with respect to prices and quality, and there is uncertainty about market conditions when regulation is chosen. We consider four different regulation regimes, based on two-part tariffs: A cap on the fixed fee is combined with either (i) quantity and quality standards, (ii) price and quality standards, (iii) price standards and quality bonuses, or (iv) quantity standards and quality bonuses. It turns out that there is a clear ranking of the four regimes in terms of expected welfare. The best results are obtained by regime (iv) with fixed fee caps, quantity standards, and quality bonuses.

Suggested Citation

  • Achim I. Czerny & Kay Mitusch, 2007. "Regulation of two-part tariffs and quality choice under uncertainty," Working Papers 2007-04, Center for Network Industries and Infrastructure (CNI).
  • Handle: RePEc:cni:wpaper:2007-01
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    File URL: http://www.cni.tu-berlin.de/fileadmin/documents/RePEc/cni/working_paper/czerny_mitusch_2007-quality_regulation-cni_wp_no_2007-04.pdf
    File Function: Revised version, 1998
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    More about this item

    Keywords

    Quality regulation; two-part tariffs; standards; bonuses; uncertainty;

    JEL classification:

    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General

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