Evaluating the Performance of Non-Bayesian Regulatory Mechanisms
This paper compares the performance of two prominent non-Bayesian regulatory mechanisms: Sappington and Sibley's (1988) Incremental Surplus Subsidy (ISS) and Hagerman's (1990) refinement of the Vogelsang-Finsinger (1979) mechanism. The two mechanisms are shown to induce identical, non-zero levels of "abuse"--unproductive expenses that benefit the firm--though neither induces pure waste. ISS pareto-dominates the Hagerman mechanism when lump-sum transfers to the firm are non-distortionary, but the Hagerman mechanism generates greater welfare and consumer surplus when the distortionary effects of transfers are large. For a wide range of intermediate parameter values, the quantitative difference in performance between the two mechanisms is surprisingly modest. Copyright 1996 by Kluwer Academic Publishers
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|Date of creation:||1993|
|Date of revision:|
|Contact details of provider:|| Postal: Indiana University, Center for Econometric Model Research, Department of Economics; Bloomington, IN 47405.|
Web page: http://www.indiana.edu/~econweb/
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