Regulatory risk under optimal incentive regulation: presented at CESifo Area Conference on Applied Microeconomics, March 2009
In: CESifo working paper series; 2638
In: Industrial organisation
Abstract
The paper provides a tractable, analytical framework to study regulatory risk. Regulatory risk is captured by uncertainty about the policy variables in the regulator's objective function: weights attached to profits and costs of public funds. Results are as follows: 1) The regulator's reaction to regulatory risk depends on the curvature of aggregate demand. 2) It yields a positive information rent effect exactly when demand is convex. 3) Firms benefit from regulatory risk exactly when demand is convex. 4) Consumers' risk preferences tend to contradict the firm's. 5) Benevolent regulators always prefer regulatory risk and these preferences may contradict both the firm's and consumers'.
Verfügbarkeit
Sprachen
Englisch
Verlag
Univ., Center for Economic Studies [u.a.]
Seiten
30 S.
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