Dynamic Regulation of Quality
We investigate the design of incentives for quality provision in a dynamic regulation setting in which maintenance efforts and quality shocks have durable effects. When the regulator contracts with a sequence of agents, asymmetries of information can lead to overprovision of quality, reflecting a dynamic rent extraction motive. When the regulator hires a single agent to manage quality, over-provision of quality can also be used by the regulator to strengthen dynamic incentives. We further show that for small levels of asymmetric information, the regulator may prefer contracting with a sequence of agents rather than hiring a single agent if high quality shocks are relatively unfrequent, provided all parties can commit to a long-term contract. When no such commitment is feasible, the fact that quality physically links periods together leads to a ratchet effect even under recurring private information, and shorter franchises are beneficial from a social viewpoint.
|Date of creation:||2008|
|Contact details of provider:|| Postal: Sherbrooke, Québec, J1K 2R1|
Phone: (819) 821-7233
Fax: (819) 821-6930
Web page: http://www.gredi.org/home/documents-de-travail
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tracy R. Lewis & David E.M. Sappington, 1991. "Incentives for Monitoring Quality," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 370-384, Autumn.
- Dennis Gaertner, 2004. "Endogenizing Private Information: Incentive Contracts under Learning By Doing," SOI - Working Papers 0413, Socioeconomic Institute - University of Zurich.
- Laffont, Jean-Jacques & Tirole, Jean., 1988.
"Adverse Selection and Renegotiation in Procurement,"
665, California Institute of Technology, Division of the Humanities and Social Sciences.
- Jean-Jacques Laffont & Jean Tirole, 1990. "Adverse Selection and Renegotiation in Procurement," Review of Economic Studies, Oxford University Press, vol. 57(4), pages 597-625.
- Jean-Jacques LAFFONT & Jean TIROLE, 1990. "Adverse Selection and Renegotiation in Procurement," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9005, Université de Lausanne, Faculté des HEC, DEEP.
- Ingo Vogelsang & Jorg Finsinger, 1979. "A Regulatory Adjustment Process for Optimal Pricing by Multiproduct Monopoly Firms," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 157-171, Spring.
- Laffont, Jean-Jacques & Tirole, Jean, 1986.
"Using Cost Observation to Regulate Firms,"
Journal of Political Economy,
University of Chicago Press, vol. 94(3), pages 614-641, June.
- Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790.
- Gérard Gaudet & Pierre Lasserre & Ngo Van Long, 1995.
"Dynamic Incentive Contracts with Uncorrelated Private Information and History Dependent Outcomes,"
CIRANO Working Papers
- GERARD Gaudet & PIERRE Lasserres & NGO VAN Long, 1996. "Dynamic Incentive Contracts With Uncorrelated Private Information And History-Dependent Outcomes," The Japanese Economic Review, Japanese Economic Association, vol. 47(4), pages 321-334, December.
- Gérard Gaudet & Pierre Lasserre & Ngo Van Long, 1993. "Dynamic Incentive Contracts with Uncorrelated Private Information and History Dependent Outcomes," Cahiers de recherche du Département des sciences économiques, UQAM 9302, Université du Québec à Montréal, Département des sciences économiques.
- Alessandro Pavan & Ilya Segal & Juuso Toikka, 2009.
"Dynamic Mechanism Design: Incentive Compatibility, Profit Maximization and Information Disclosure,"
1501, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Alessandro Pavan & Ilya Segal & Juuso Toikka, 2008. "Dynamic Mechanism Design: Incentive Compatibility, Profit Maximization and Information Disclosure," Carlo Alberto Notebooks 84, Collegio Carlo Alberto.
- Susan Athey & Ilya Segal, 2007.
"An Efficient Dynamic Mechanism,"
122247000000001134, UCLA Department of Economics.
- d'ASPREMONT, Claude & GERARD-VARET, Louis-André, "undated".
"Incentives and incomplete information,"
CORE Discussion Papers RP
354, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Jean-Jacques Laffont & Jean Tirole, 1985.
"The Dynamics of Incentive Contracts,"
397, Massachusetts Institute of Technology (MIT), Department of Economics.
- Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 173-191.
- De Fraja, Gianni & Iozzi, Alberto, 2004.
"Bigger and Better: A Dynamic Regulatory Mechanism for Optimum Quality,"
CEPR Discussion Papers
4502, C.E.P.R. Discussion Papers.
- Gianni De Fraja & Alberto Iozzi, 2008. "The Quest for Quality: A Quality Adjusted Dynamic Regulatory Mechanism," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(4), pages 1011-1040, December.
- David Sappington, 2005. "Regulating Service Quality: A Survey," Journal of Regulatory Economics, Springer, vol. 27(2), pages 123-154, November.
- Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
- Lewis, Tracy R & Sappington, David E M, 1992. "Incentives for Conservation and Quality-Improvement by Public Utilities," American Economic Review, American Economic Association, vol. 82(5), pages 1321-1340, December.
- Tracy R. Lewis & Huseyin Yildirim, 2002. "Learning by Doing and Dynamic Regulation," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 22-36, Spring.
- Gaudet, Gerard & Lassere, Pierre & Long, Ngo Van, 1995. "Optimal Resource Royalties with Unknown and Temporally Independent Extraction Cost Structures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 715-749, August.
- Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
- Tracy Lewis & David E.M. Sappington, 1997. "Penalizing Success in Dynamic Incentive Contracts: No. Good Deed Goes Unpunished?," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 346-358, Summer.
- Marco Battaglini, 2003.
"Long-Term Contracting with Markovian Consumers,"
Theory workshop papers
505798000000000048, UCLA Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:shr:wpaper:08-11. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Luc Savard)
If references are entirely missing, you can add them using this form.