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Optimal Regulatory Lag under Price Cap Regulation.

Abstract:

We present an model of monopoly regulation in which the probability of cost being low rather than high depends on the firm's effort. The regulator chooses price and regulatory lag (i.e., the length of time until the next price review) to maximize welfare subject to an expected break-even constraint for the firm. Between reviews the firm has a finite horizon cost minimization problem. We characterize its solution and the resulting dilemmas for the regulator. Starting from a high cost state, lo...

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Authors


Mark Armstrong More by this author
John Vickers More by this author
Journal:
Revista Espanola de Economia
Volume:
12
Issue:
Extra 1
Publication date:
1995
URN:
uuid:d7e83b9c-aea9-4401-a0af-f15865cecd5d
Local pid:
oai:economics.ouls.ox.ac.uk:11429
Language:
English

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