aggregate employment and intertemporal substitution in the uk in this paper the author sets up estimates and tests an explicit model of aggregate labor supply based on the intertemporal substitution hypothesis the model is derived as the optimal decision rule of an infinitely living household maximizing an intertemporal ces utility function over consumption and leisure the evidence suggests that for aggregate employee hours the model is rejected but that for the total number of employees in employment the estimates are broadly consistent with the theory the assumed constant elasticity of substitution is estimated at around 0 2 and this estimate implies a short run real wage and real interest rate elasticity of labor supply of the same order copyright 1987 by royal economic society

technology choice and capital structure under rate regulation a comment abstract this note identifies and corrects some problems in the analysis of spiegel international journal of industrial organization 15 1997 191 in particular it is shown that equity only regulated firms will want to choose cost structures with strictly positive fixed costs to induce the regulator to set prices that give strictly positive expected returns inefficient technology choice is a costly substitute for taking up debt in the spiegel and spulber rand journal of economics 25 1994 424 model regulatory opportunism may induce both the choice of inefficiently high fixed cost and inefficiently high marginal cost technologies contrary to spiegel international journal of industrial organization 15 1997 191 this implies that the introduction of debt may lead to the choice of technologies with higher or lower fixed costs depending on the available set of technologies

on intertemporal substitution and aggregate labor supply in this paper the author presents an econometric investigation of t he implications of the intertemporal substitution hypothesis for aggregate employment in the united states the tests are based on a version of the hypothesis with time separable preferences on the basis of the evidence produced the hypothesis is quite successful in explaining fluctuations in aggregate employment although almost totally unsuccessful in accounting for fluctuations in employee hours these findings suggest that the hypothesis might have an important role to play in macroeconomic modeling although they contradict attempts to account for aggregate fluctuations solely in terms of continuous competitive equilibrium in labor markets copyright 1987 by university of chicago press

flexibility and firm diversity with demand fluctuations abstract this paper examines how demand induced output fluctuations are distributed by competitive firms within industries it shows that competitive equilibria in fluctuation prone industries may support technologically diverse firms some firms are more flexible than others and absorb a disproportionate share of industrywide output fluctuations others are less flexible and have output levels more stable than the industry as a whole their coexistence in competitive equilibrium is due to a tradeoff between flexibility and static efficiency within the discrete set of available production technologies

what can we learn from the grand policy experiment lessons from so2 allowance trading stable url http links jstor org sici sici 0895 3309 28199822 2912 3a3 3c69 3awcwlft 3e2 0 co 3b2 tthe journal of economic perspectives is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgtue jun 26 16 25 17 2007

the labour market in an equilibrium business cycle model abstract this paper extends the basic multimarket model of lucas 1973 to explicitly consider the labour market it builds on an important distinction between the product wage entering the decision function of firms and the real wage entering the decision function of workers because of the unobservability of the price level workers make forecasting errors in trying to calculate their real wage despite having rational expectations this gives rise to a phillips curve the major new result of the paper is the demonstration that wages are less variable than prices which offers an equilibrium interpretation of wage stickiness

spatial competition with heterogeneous firms i model endogenous horizontal and vertical product differentiation with arbitrarily many heterogeneous firms firms are asymmetric in that they differ in their marginal costs i prove that under an equilibrium refinement all economically relevant firm outcomes are uniquely determined across all strict subgame perfect nash equilibria there are two central results first a firm s price market share and profit are independent of its neighbors marginal costs conditional on the average marginal cost in the market second more productive firms are more isolated all else equal in particular the distance between two firms is strictly decreasing in their average marginal cost

information provision by interest groups we investigate interest groups incentives to inform consumers about the damaging practices of firms and the impact such an ig has on firms technology choices the ig aims to reduce the production of some bad say pollution it can at a cost investigate firms production practices and inform consumers about its findings since consumers care about the environment revealing differences in pollution levels between firms leads to vertical product differentiation the information by shifting sales from dirty towards clean firms reduces pollution we show that the ig is most inclined to investigate firms in relatively competitive industries and that the threat of being unmasked as a polluter prompts dirty firms to adopt a clean technology

flexibility and the theory of the firm abstract the object of this paper is 1 to bring together and integrate the various concepts of flexibility found in the economic literature 2 to flesh out the meaning of various aspects of flexibility and their implications thereby bridging the gap between the existing highly abstract theories and the empirical facts and 3 in the process to give a rich and comprehensive enough description of an industry to stimulate further theoretical as well as empirical work the study tries to combine inductive and deductive reasoning using empirical observations based on indepth interviews with manufacturers in the metalworking industry in the united states and sweden

effects of regulation on utility financing theory and evidence standing of these cross sectional variations might be afforded by the detailed examination of specific industry characteristics and their relationship to firms financing patterns the present study offers a methodology for approaching this issue the first step is to assemble joint theories of industry and financial structure in order to identify the ways in which changing industry conditions might be associated with changes in financing evidence on such simultaneous changes can then be examined in an attempt to identify the most plausible joint theory the methodology is used to investigate the effects of state commission regulation on the financing of electric utilities this is a natural candidate for study since regulation is such a salient feature of the industry in addition the regulatory system imparts some interesting special features to the very nature of utility capital structures inherent in all capital structures for example are opportunities for shifting wealth between bondholders and shareholders but under regulation these wealth shifting opportunities are expanded to encompass consumers as well finally the study of regulation has resulted in several relatively well specified theories of why regulation is imposed and what its observable effects should be in section i the different theories of capital structure and regulation are discussed and their joint implications are derived the capital structure theories include the perfect capital market theory the debt capacity theory and the financing hierarchy theory the regulatory theories include the public interest or market failure theory the political economy theory and the imperfect monitoring theory in section ii financing data from the early days of state commission utility regulation are used to try to distinguish

regulation of administered prices an empirical analysis of the microeconomics of price movement in finland 1972 77 curiously enough the concept of administered prices launched by gardiner means in his 1934 report to the u s secretary of agriculture still shows up in discussions on price policy and control today almost fifty years since it was coined and three decades after the discussion2 in which it should have been buried even more astonishing is the fact that its spin off administered inflation a term introduced by the kefauver committee in 1957 3 is still a part of economic language in some instances in the basic formulation that of means in 1935 administered prices are not assumed to be explicitly linked with market power but simply prices set by administrative action and held constant for a period of time means 12 p 78 although the hypothesis in this form was based on no economic reasoning of acceptable clarity it might still be accepted for the simple truism it is clearly some prices will change more seldom than others since for one thing costs of price changes will vary as is intuitively clear and as shown by sheshinski and weiss 17 pp 294 95 the optimal strategy of a firm in an inflationary environment will consist of longer intervals between successive price changes the higher the cost of such a change is under some very special assumptions risk aversion may also serve as an explanation to a decrease in the number of price changes relative to the number of changes in cost as indicated by the results of schramm and sherman 1 5 4 the administered inflation hypothesis as forwarded by means in his 1957 testimony before the kefauver committee means 12 pp 101 29 and by

cheap talk with two audiences these problems have in common a simple structure an informed sender says something to two interested but uninformed receivers who then take actions based on their beliefs these actions affect the sender as well as the receivers in this paper we study how costless nonverifiable claims cheap talk can affect these beliefs and hence the actions and how the incentives for truthful revelation to one receiver are affected by the presence of the other we then ask how welfare is affected by whether claims are made in public or in private as some of the above examples suggest public messages may be more credible than private messages addressed to either audience one possibility is that the presence of one audience can discipline the sender s relationship with the other we call this one sided

the capital structure of a regulated firm we examine the equilibrium price investment and capital structure of a regulated firm using a sequential model of regulation we show that the firm s capital structure has a significant effect on the regulated price consequently the firm chooses its equity and debt strategically to affect the outcome of the regulatory process in equilibrium the firm issues a positive amount of debt and the likelihood of bankruptcy is positive debt raises the regulated price thus mitigating regulatory opportunism however underinvestment due to lack of regulatory commitment to prices persists in equilibrium

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

monetary policy and the informational implications of the phillips curve in this paper i examine optimal monetary policy and the informational implications of the phillips curve in a stochastic macroeconomic model it is assumed that wages are not only indexed to the price level but respond to the state of the labor market as well if information about current disturbances is conveyed only through market prices it turns out that wages have independent informational content over and above the informational content of other aggregate prices the optimal policy in this model implies reactions to changes in both wages and the aggregate price level as unlike the commonly used model of gray and fischer wages and prices are only partially correlated signals about the unobserved disturbances the paper also discusses an extension to an open economy and the relation between exchange rate policy and wages copyright 1990 by the london school of economics and political science

granger causality real factor prices and employment a re appraisal with uk data this paper reports the results produced by applying tests for granger causality of post war u k real wage and employment data the results suggest that real wages granger cause employment with no feedback this result is robust to the inclusion of real materials prices the results are not robust to changes in the sample period real wages and employment appear independent with data up to 1977 4 the oscillations of real wages between 1976 and 1978 when a stern wage policy was implemented and dismantled are responsible for these different results this explains the contradictory results reported in previous studies

trigger price regulation we consider the difficulty of achieving efficient prices and investments when returns on a public utility s projects are vulnerable to opportunistic ratemaking we model the long term relationship between a firm and its regulator as a time dependent supergame in which the regulator sets price ceilings to maximize surplus and the firm invests to maximize profit we find history dependent strategies that support self enforcing mutually beneficial equilibria equilibrium payoffs are close to the planning solution provided interest rates are small enough and capital depreciates fast enough we concentrate on trigger price regulation where in response to inefficient behavior the regulator cuts price down to operating cost and the firm curtails investment this mechanism performs well even with production economies and with restrictions on players threats

efficiency based rank assessment for electric power industry a combined use of data envelopment analysis dea and dea discriminant analysis da abstract this study discusses a combined use of dea data environment analysis and dea da discriminant analysis to determine the efficiency based rank of energy firms this type of performance evaluation is important because we often have a difficulty in accessing a large sample on energy firms to derive reliable empirical results the proposed approach is useful in dealing with such a limited number of energy firms often found in previous dea studies on energy industries in the world the proposed approach uses dea to classify energy firms into efficient and inefficient groups based upon their efficiency scores then it utilizes dea da to assess their efficiency scores and ranks in this stage we can find an adjusted efficiency score for each energy firm the proposed approach provides us with the following analytical capabilities all of which cannot be found in a conventional use of dea in assessing energy firms first the proposed dea approach can avoid zero in all multipliers on efficient energy firms by incorporating scsc strong complementary slackness condition so that it can handle an occurrence of multiple reference sets and multiple projections the dea result classifies all energy firms into efficient and inefficient groups second dea da applied to the two groups evaluates all energy firms by an industry wide evaluation not depending upon a limited number of efficient energy firms in a reference set as found in a conventional use of dea the analytical capability can reduce the number of efficient energy firms third the proposed approach can provide their efficiency based ranking scores finally we can conduct a rank sum test based upon their ranking scores to obtain a statistical inference as an application this study uses the proposed approach to examine the performance of japanese electric power industry we find two economic implications one of the two implications is that no major change has occurred in the operational performance of japanese electric power industry because of japanese sluggish economy from 2005 to 2009 the other implication indicates that there are strategic differences in the operation of japanese electric power firms after the liberalization

capital vintage time trends and technical change in the electric power industry beginning with tinbergen in 1942 economists have employed a time trend in cost or production functions to represent the rate at which new technology is introduced into the production unit in sufficiently flexible models of the production process the time trend may be used to obtain estimates of the rate as well as direction of technical change the use of the time trend is generally defended on pragmatic grounds as no theoretical justification exists for assuming that new technology is introduced at a steady rate that is independent of a firm s investment in r d education capital of a more recent vintage etc in recent years alternatives to the traditional time trend have been sought to represent the rate at which new technology is introduced research in this area has been concentrated in the telecommunications industry where the stock of r d or the percentage of calls completed by direct dialing or modern switching facilities have been employed as technological indices by nadiri and schankerman 32 denny et al 14 and christensen et al 7 the latter two studies indicate that explicit technological indices provide a better representation of the pace of innovation than the time trend this conclusion must remain tentative however as it is not possible to determine what is the true direction of technical change in these studies this shortcoming is overcome in a recent study by kopp and smith 24 who compare the performance of time trends and explicit technological indices in a study using pseudo data generated by process analysis models their results unambiguously support the use of technologically explicit indicators of technical change and indicate that the use of a time trend may not provide a consistent estimate of the direction of technical change this study does not however shed any light on the ability of a time trend to accurately reflect the rate of technical change the purpose of this study is to investigate the effects of alternative technological indices on the estimated rate and direction of technical change in the electric power industry the performance of a time trend is compared with that of a vintage index computed as the average age of a firm s steam generating capacity this latter index is consistent with the notion that new technology is embodied in newly constructed capital an assumption sup

sequential equilibrium investment by regulated firms we examine the investment decisions of regulated firms in a sequential equilibrium model under asymmetric information the regulator is unable to commit to a pricing policy unlike mechanism design models but sets rates after observing the firm s investment the information conveyed by the firm s investment level alleviates the underinvestment observed under full information with limited regulatory commitment the equilibrium regulatory strategy can be characterized by a nonlinear rate of return schedule a regulator announcing such a schedule would be able to make a credible commitment

cost efficiency of electric grid utilities in china a comparison of estimates from sfa mle sfa bayes and stoned cnls with the purpose of estimating the range of cost efficiency levels of the power grid sector in china we assembled a data set including 23 provincial power grid companies spanning from 2005 to 2009 and conducted an empirical study based on the sfa mle sfa bayes and stoned cnls methodologies empirical results show that the average values of efficiency from different models vary from 0 85 to 0 92 depending especially on the assumptions underlying inefficiency content further results demonstrate that there is exogenous technical progress during the sample period and per capita gdp of the province is negatively related to the costs of the electric grid company located in the corresponding province we hope this empirical study will contribute to the debate on an efficiency based regulation scheme which was introduced to the chinese electric grid sector on a pilot base in 2014

the choice of technology and capital structure under rate regulation this paper examines a regulated firm s choice of technology it presents a model in which regulatory opportunism induces the firm to adopt a technology that gives rise to cost functions with higher variable costs and lower fixed costs than is socially optimal this distortion arises because the regulated price is positively correlated with marginal costs consequently a technology with low marginal costs implies a low regulated price and hence is unattractive to the firm debt financing is shown to alleviate this distortion because it induces regulators to increase the regulated price to prevent the firm from financial distress thereby reducing the cost to the firm of adopting technologies with low marginal costs when regulators restrict the firm s ability to issue debt the firm may have an incentive to goldplate i e waste resources this incentive disappears when the firm can use its most preferred mode of financing

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

economic perspectives on privatization despite being one of the most fundamental issues in political economy the question of the appropriate boundary between public and private enterprise received relatively little attention in mainstream economic analysis until quite recently in the 1980s however programs of ownership reform were started in many developed and developing countries dramatic though some of these policies have been they are likely to be overshadowed in the 1990s by even greater privatization in the reforming socialist economies the opening sections of this paper are organized around three broad and interrelated questions how does ownership matter for the efficiency of enterprise performance what is the role for privatization in financing public debts and deficits what are the distributional and political implications of privatization finally we examine privatization in practice in three countries britain chile and poland

debt and communications technology diffusion retrospective evidence this study has evaluated the relationship between debt in the capital structure of firms and the dynamics of broadband and digital technology adoption in the united states based on a large dataset on local exchange carriers in the united states over a contemporary historical fourteen year period from 1988 to 2001 using treatment effects modeling the impact of debt in impacting the levels of firms broadband deployment has been found to be negative and significant the primary source of debt in the sector has been in the form of arm s length corporate bonds and the assumptions of the monitoring hypothesis associated with such debt that lenders in the face of information and collective actions problems might not be able to control managers and hence invest less in highly technology intensive situations are supported by the data additionally the data set has been split into separate sets for two periods one between 1988 and 1995 for the period before the telecommunications act of 1996 came into force and the other set between 1996 and 2001 and the results have stayed consistent a test of the coefficients between the two periods has shown that the negative impact of leverage on broadband deployment has become stronger after the introduction of competition in the sector and this has suggested that the change in the institutional logics between the two periods has been of material impact in influencing lenders perceptions

risk management and the stated investment costs by independent power producers abstract evidence presented in this article suggests that in less developed countries the independent power producers ipps have an incentive to overstate the investment cost as an instrument to mitigate the country risk in greenfield electricity generation projects this technique is an effective risk mitigation strategy under the conventional financing and contractual arrangements in such markets it however promotes the use of less efficient power plants the distortion in the choice of technology results in economic losses over the life of the plants the findings of this research have important policy implications that can assist regulatory bodies governments and international financing agencies to adopt a more informed approach to the integration of private investment into the electricity generation capacity of developing countries

regulated equity returns a puzzle abstract based on a database of u s electric utility rate cases spanning nearly four decades the returns on equity authorized by regulators have exhibited a large and growing premium over the riskless rate of return this growing premium does not appear to be explained by traditional asset pricing models often in direct contrast to regulators stated intent we suggest possible alternative explanations drawn from finance public policy public choice and the behavioral economics literature however absent some normative justification for this premium it would appear that regulators are authorizing excessive returns on equity to utility investors and that these excess returns translate into tangible profits for utility firms

specification tests of the lucas rapping model aggregate fluctuations in employment and unemployment are often explained within a market clearing framework as intertemporal substitution in labor supply under this hypothesis leisure in the current period is supposed to be highly substitutable with leisure and goods in other periods consequently labor supply responds to perceived temporary changes in the real wage although it may be inelastic with respect to permanent changes in the real wage a very important and influential empirical study of intertemporal substitution was presented by robert lucas and leonard rapping 1969 l r lucas and rapping estimated a simultaneous equations model of the aggregate labor market under an adaptive expectations forecasting scheme and found strong support for the intertemporal substitution hypothesis although the adaptive expectations assumption is now rarely used in such models the intertemporal substitution hypothesis has become quite prominent in equilibrium business cycle theories where it is used to explain how fluctuations in aggregate demand can result in real changes in output employment and unemployment besides the l r study relatively few attempts have been made to verify the intertemporal substitution hypothesis and most have failed to find the kind of intertemporal substitution elasticity estimated by lucas and rapping 2 in addition the l r results have never been tested although joseph altonji made some minor data corrections extended the time period and reproduced them 3 this paper helps to reconcile the l r results with later findings and also provides a convincing illustration of the importance and usefulness of specification testing here the l r estimates are reproduced and the model is subjected to the kind of overidentification tests now widely used in econometric analysis the restrictions on the model are easily rejected this standard specification testing leads to very different conclusions about the empirical importance of the intertemporal substitution hypothesis than those suggested by lucas and rapping

pricing efficiency under rate of return regulation some empirical evidence for the electric utility industry the authors test quasi optimal pricing rules for rate of return regulation for a sample of electric utilities they estimate the regulated cost function and demand equations by class of customer for the sample to yield the cost and demand parameters required to assess the utility rate structures the results indicate that the price structure of electricity by class of customer is not quasi optimal and that welfare improvement might be possible under alternative prices searching for the price structure which satisfies the criteria they find that commercial users rates have been too high relative to residential and to a lesser extent industrial rates they note that commercial uses tend to be less organized and more poorly represented in the rate making process 16 references 8 tables

regulatory restructuring and incumbent price dynamics the case of u s local telephone markets prior to the telecommunications act of 1996 many u s states restructured their regulatory framework by replacing rate of return regulation with competition in both the local exchange service and local long distance markets and adopting price regulation price caps and price freezes using a panel data set of incumbent firm prices for three services i investigate whether price regulation and differences in entry conditions affect incumbent operators rate structures i find that competition has prompted a significant amount of rate rebalancing by reducing the amount of cross subsidization present in local telephone markets in addition the added flexibility of price cap regulation speeds the rate rebalance effects of competition

green business and blue angels this paper presents a model of a monopolist svoluntary overcompliance with legal environmentalstandards under asymmetric information about thefirm s environmental impacts the key assumptions are the existence of quality premia for environmentalsoundness a positive but imperfect degree ofmonitoring and adaptive consumer expectations conditions necessary for overcompliance to arise in aprofit maximizing equilibrium are derived the effectsof a third party eco labeling system are analyzed itis shown that the existence of an independent labelingauthority increases the likelihood of overcomplianceto be profit maximizing moreover firms might have anincentive to lobby for the introduction of such asystem the effect of consumers risk preferences andan instrument for preventing greenwash companieslying about their environmental performance is alsodiscussed

technological competition uncertainty and oligopoly abstract in an oligopoly context the present technological choice of a firm which expects to receive private revelant information just prior to the uncertain market stage has both a flexibility value and a strategic commitment value in contrast to some common wisdom ideas we provide a natural two stage competition framework in which an increase in uncertainty always raises the commitment value of the technological choice of the firm and may decrease its flexibility value when the increased uncertainty takes the form of more variable beliefs the first result tends to reinforce therefore the findings of the strategic commitment literature under certainty

in search of a stylised fact do real wages exhibit a consistent pattern of cyclical variability the paper surveys the studies on the cyclical behaviour of real wages published from the twenties onwards the traditional simple neoclassical model of the labour market suggests that real wages tend to move countercyclically however from a theoretical viewpoint there are few reasons to expect this behaviour once the simple model is extended to account for imperfect competition uncertainty lagged responses or contracting between firms and workers empirical studies give different answers to the problem the contributions reviewed in the paper are arranged roughly in a chronological order the interwar period the postwar pre econometric studies the econometric work using aggregate data the evidence produced on the basis of longitudinal data the analyses of the shock responsiveness of real wages and finally the most recent papers attempting a reconciliation of the somewhat conflicting evidence derived from aggregate and panel data

rate of return regulation and utility capital structure decisions a corporation s capital structure is a means for partitioning its return stream among different classes of securityholders and across different states of nature the primary thrust of capital structure theory has been to determine whether and how this partitioning affects the total value of the firm 1 for a firm subject to rate of return regulation however the capital structure decision may take on an additional dimension under such regulation the firm s output price is set by an outside agency so as to yield a fair return to providers of capital and if effective this process reduces monopoly profits but if the regulator s price setting rule depends on the firm s capital structure in some predictable way the firm may be able to influence price and hence reap additional profits by judiciously choosing its financing mix the purpose of this paper is to analyze possible price influence effects of a regulated firm s capital structure and to illustrate regulators attempts to combat them the determinants of a regulated firm s capital structure have been touched upon in previous papers gordon 8 elton and gruber 5 gordon and mccallum 9 jaffe and mandelker 11 meyer 14 and sherman 24 for example but that issue has not been their primary concern the present paper differs from those mentioned above by focusing its attention more directly on the capital structure decision this issue is of interest in its own right in view of the important position occupied by regulated firms securities in the capital market but the approach taken here also serves to highlight and extend some common threads in the previous papers in particular the results of these papers emerge as straightforward applications of the price influence principle and differences among them can be attributed to differing perceptions of the regulator s pricesetting behavior section i of the paper discusses the price influence principle in general terms and describes the circumstances under which it will alter a regulated firm s financing choice section ii presents three illustrations of how the general principle might work in practice depending on the price setting behavior of the regulatory agency section iii discusses regulators attempts to thwart the priceinfluence effect and conclusions are drawn in section iv

relying on the information of interested parties we investigate the conventional wisdom that competition among interested parties attempting to influence a decisionmaker by providing verifiable information elicits all relevant information we find that if the decisionmaker is strategically sophisticated and well informed about the relevant variables and about the preferences of the interested party or parties competition may be unnecessary to achieve this result if the decisionmaker is unsophisticated or not well informed competition is not generally sufficient if the interested parties interests are sufficiently opposed however or if the decisionmaker is seeking to advance the parties welfare then competition can reduce or even eliminate the decisionmaker s need for prior knowledge about the relevant variables and for strategic sophistication in other settings only the combination of competition among information providers and a sophisticated skepticism is sufficient to allow effective decisionmaking