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Trade Balance Constraints and Optimal Regulation

Author

Listed:
  • Lucia Quesada

    (University of Wisconsin Madison)

  • Omar Chisari

    (Universidad Argentina de la Empresa)

Abstract

We investigate the interactions between optimal regulation and external credit constraints. When part of a regulated ¯rm is owned by foreign investors, a credit-constrained country who wants to send pro¯ts abroad has to generate enough surplus in the trade account in order to compensate capital out°ows. We show that the credit constraint translates into a constraint of maximum profits for the regulated firm. Overall e±ciency in the regulated sector is reduced to maintain incentive compatibility. A flexible exchange rate helps relaxing the credit constraint. E±ciency is higher than with a fixed exchange rate, but still lower than without credit constraints.

Suggested Citation

  • Lucia Quesada & Omar Chisari, 2005. "Trade Balance Constraints and Optimal Regulation," Industrial Organization 0504004, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0504004
    Note: Type of Document - pdf; pages: 35
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    References listed on IDEAS

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    6. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
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    Cited by:

    1. Omar Chisari & Antonio Estache & Germán Lambardi & Carlos Romero, 2013. "The trade balance effects of infrastructure services regulation," International Economics and Economic Policy, Springer, vol. 10(2), pages 183-200, June.
    2. Gustavo Ferro & Omar O. Chisari, 2010. "Tópicos de Economía de la Regulación de los Servicios Públicos," Working Papers hal-00473038, HAL.

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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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