a lesson from argentina setting transmission tolls in a competitive auction is much better than regulating them abstract there are at least two procedures for setting the tolls paid by power line users one consists of regulating them in a standard process the other which is used in argentina involves auctioning the lines to the lowest toll in this paper we show that an auction yields higher expected social welfare if n 2 bid expected social welfare is even higher if as in argentina those who benefit from the line can also bid and build moreover when the social welfare is utilitarian an auction beats regulation even when the regulator can perfectly audit costs ex post we describe and examine the auction of the fourth comahue transmission line in argentina assuming that the regulator s information about costs is similar to the information held by the industry the model suggests that had tolls been regulated they would have been at least 61 higher

effects of the change from rate of return to price cap regulation this article focuses on the use of incentive regulation in the telephone industry in the united states we first characterize some of the difficulties that have led regulators to move away from traditional rate ofreturn cost based regulation and toward systems of regulation that provide incentives for increasingly efficient production allowing firms to share in the social gains from efficiency with increased profits we then discuss the basic structure of incentive regulation as it has most commonly been adopted in the telephone industry in the united states the first is price cap pc regulation which typically allows the firm to

does entry size matter the impact of the life cycle and technology on firm survival a wave of empirical studies has recently emerged showing that smaller scale entry is confronted with a lower likelihood of survival than their larger counterparts the purpose of this paper is to examine whether the relationship between size of a firm when entering an industry and the likelihood of survival holds under different technological conditions and across the different stages of the industry life cycle the empirical evidence suggests that the relationship between firm size and the likelihood of survival is shaped by technology and the stage of the industry life cycle while the likelihood of survival confronting small entrants is generally less than that confronting their larger counterparts the relationship does not hold for mature stages of the product life cycle or in technologically intensive products in mature industries that are still technologically intensive entry may be less about radical innovation and possibly more about filling strategic niches thus negating the impact of entry size on the likelihood of survival

wage vacancy contracts and coordination frictions abstract we consider a directed search model with risk averse workers and risk neutral entrepreneurs who can set up firms that post wage vacancy contracts i e contracts where firms can make payments to more than one applicant and where the payments can be different for each applicant and be contingent on the number of applicants we establish that the type of contracts the literature focuses on are not offered if firms can post wage vacancy contracts we show that there exists an equilibrium satisfying a monotonic expected utility property which is efficient furthermore we investigate the role of wage vacancy contracts on welfare and competition

commitment and fairness in a dynamic regulatory relationship this paper considers a multiperiod model of a regulated firm that has stationary private information which may be revealed through performance if it cannot make commitments to future policies the regulator has an incentive to exploit any information the firm reveals and laffont and tirole show that there is no regulatory policy that is separating over any closed interval a fairness arrangement is proposed in which the firm agrees not to quit if in future periods the regulator allows it to earn a nonnegative profit given the type it revealed in earlier periods the properties of such arrangements are studied and an example is presented in which both the firm and the regulator prefer a fairness arrangement to a policy feasible without commitment

testing efficiency in intermediate regulated industries abstract a model is developed that permits the testing of hypotheses concerning capital and pricing efficiency in intermediate regulated industries application to us electric utility data for 1988 1990 suggests that low allowable rates of return may have induced shortfalls in capacity

brazil s simplified tax regime and the longevity of brazilian manufacturing companies a survival analysis based on rais microdata abstract the article aims to analyze the effects of the brazilian simplified tax regime simples nacional on the longevity of manufacturing microenterprises contributing to the current debate on the expansion of the program based on the rais relacao anual de informacoes sociais microdata comprising the period between 2007 2013 a sample of manufacturing establishments homogeneous in their economic structure was selected and divided into two groups those who opted for the program and those who did not the survival analysis technique and the propensity score matching made it possible to identify that the establishments opting for simples nacional that were created in 2007 had a 30 lower chance of mortality than the companies not opting for it another main result was the indication that separating manufacturing establishments by level of technology intensiveness the simplified regime had a differentiated impact among the groups with only the manufacturing establishments of low and medium low technology intensiveness sectors being affected

regulatory options and price cap regulation we construct a simple model of the regulatory process in which a monopoly firm has private information about its capabilities and its cost reducing activities the optimal regulatory policy offers the firm a choice between two regulatory regimes one of which resembles pricecap regulation the other regime has thefirm share realized gains in surplus with consumers we examine the optimal linking of the two regimes and show how the optimal regulatory policy varies with changes in the technological climate in the industry and with the nature of the information asymmetry between regulator and firm

hybrid revenue caps and incentive regulation abstract this paper analyzes the incentive effects of a hybrid revenue cap on a regulated monopolistic firm using non discriminatory two part pricing it is shown that the fixed and the variable part of the cap have different meanings in terms of regulation the fixed part of a hybrid revenue cap should be used to control the profit level of the regulated firm while the variable part should be used to control the social efficiency level since detailed information about the firm s cost function is required to determine the revenue cap parameters the overall conclusion is that revenue caps are a rather bad idea in the area of incentive regulation

the impact of alternative forms of state regulation of at t on direct dial long distance telephone rates federal and state regulatory agencies have traditionally used rate of return regulation to set profit and rate levels for utilities a price cap framework in which the regulatory agency sets a maximum rate below which the regulated utility has pricing flexibility is possibly a more efficient alternative to rate of return regulation this article presents an econometric analysis that compares at t s prices of intrastate long distance telephone service in states that allow at t pricing flexibility with those in states that do not the results of this analysis suggest that at t s daytime evening nighttime and weekend rates are significantly lower in states that allow pricing flexibility than in states that use rate of return regulation

monitoring moral hazard asymmetric information and risk sharing in procurement contracting this article characterizes the optimal procurement contract for a monopsonistic purchaser who contracts with a risk averse supplier with private information about his costs and who contributes an unobservable effort the costs incurred by the supplier may be uncertain and the purchaser has access to a monitor of costs that may be subject to noise that complicates risk sharing the purchaser prefers to respond to the observability problem with afixed price contract and to respond to the private information problem with a cost plus contract with uncertain costs and a perfect monitor the optimal contract relieves the supplier of some risk and the purchaser prefers that the effort of the supplier be subsidized with deterministic costs and a noisy monitor the optimal contract places risk on the supplier and the purchaser may prefer that the effort of the supplier be taxed procurement of goods and services is an important form of economic exchange that is often characterized by bargaining and contracting rather than by exchange in a competitive market the procurement setting analyzed here corresponds to the case in which the purchaser is a monopsonist who contracts with a single supplier as in the case of the department of defense contracting for the delivery of a military system in such a setting a principalagent model may be a reasonable representation of the relationship between the purchaser and the supplier and the economics of the procurement arrangement is then captured in the contract when the item procured is standardized the relevant information is likely to be common knowledge and risk may be minimal in such a case a fixed price contract may satisfactorily resolve the purchaser s contracting problem in contrast the model considered here is intended to represent the procurement of a nonstandardized item about which information is incomplete costs are uncertain and observability of supplier costs by the purchaser is limited procurement thus is complicated by the conjunction of adverse selection risk sharing and moral hazard problems

price cap regulation and information acquisition abstract in this paper we endogenize the information structure under price cap regulation we show that in order to induce the firm to acquire valuable but costly information price cap mechanisms need to ensure high profits to the firm further we compare incentives for information acquisition under price cap regulation and under the optimal mechanism designed to deal with the standard case where asymmetric information is assumed we show that the latter provides higher incentives for information acquisition and that the welfare loss associated with price cap regulation with respect to the optimal regulatory mechanism increases when the issue of information acquisition is considered

wage differentials employer size and unemployment the unique equilibrium solution to a game in which a continuum of individual employers choose permanent wage offers and a continuum of workers search by sequentially sampling from the set of offers is characterized wage dispersion is a robust outcome provided that workers search while employed as well as when unemployed the unique nondegenerate equilibrium distribution of wage offers is constructed for three cases 1 identical workers and employers 2 identical employers and an atomless distribution of worker supply prices and 3 identical workers and an atomless distribution of job productivities copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

directed search and the bertrand paradox i study a directed search model of oligopolistic competition extended to incorporate general capacity constraints congestion effects and pricing based on ex post demand in the presence of any one of these ingredients the bertrand paradox fails to hold hence despite the emphasis that has been placed by the literature on sellers capacity constraints as a resolution to the paradox the existence of such constraints is only a subcase of a general class of environments where the paradox fails specifically bertrand s paradox will not arise whenever the buyers expected utility from visiting a seller is decreasing in that seller s realized demand

incentive regulation and productive efficiency in the u s telecommunications industry this study evaluates the effect of incentive regulation on the productivity of u s local exchange carriers between 1988 and 1993 introducing pure price cap schemes has a strong and positive but lagged effect on technical efficiency where price cap schemes operate in conjunction with an earnings sharing scheme there is immediate effect on technical efficiency but the impact is less strong than the effect of a pure price caps scheme where only an earnings sharing scheme operates its effect is detrimental to technical efficiency weaker though broadly positive results are obtained as to the effect of incentive regulation on scale efficiency copyright 1997 by university of chicago press

intertemporal price cap regulation under uncertainty this paper examines the intertemporal price cap regulation of a firm that has market power under uncertainty the unconstrained firm waits longer before investing or adding to capacity and as a corollary enjoys higher prices over time than would be observed in an equivalent competitive industry in the certainty case the imposition of an inter temporal price cap can be used to realise the competitive market solution by contrast under uncertainty it cannot even if the price cap is optimally chosen under uncertainty the monopoly firm will generally a under invest and b impose quantity rationing on its customers

the impact of the automatic adjustment clause on fuel purchase and utilization practices in the u s electric utility industry the purpose of this paper is to examine the combined influence of the search and switching effects of the automatic fuel adjustment clause on the prices paid by utilities for the aggregate fuel input then given this combined effect an attempt is made to separate the individual influences of the two component effects findings indicate that the presence of an automatic fuel adjustment clause leads the regulated firm to pay a higher price for the aggregate fuel input than would be paid in the absence of the clause the severity of this aggregate fuel input than would be paid in the absence of the clause the severity of this aggregate fuel price differential is estimated to be on the order of 6 cents 10 sup 6 btu or approximately 10 of the average fossil fuel price moreover this aggregate effect is found to result from the induced disincentive to switch to less expensive fuels rather than the payment of higher prices for the individual component fuels 21 references 5 tables

directed search and firm size standard directed search models predict that larger firms pay lower wages than smaller firms contrary to the data this article proposes one way to obtain this positive size wage differential in a directed search setting i posit that there is an optimal size associated with a firm a firm suffers a penalty by not operating at its optimal size i show that if this penalty is sufficiently large the size wage differential will be obtained my model also gives a new way to look at the data because it highlights the importance of the distinction between intended and realized firm sizes

equilibrium wage dispersion and interindustry wage differentials this paper develops a search theoretic explanation of interindustry wage differentials given coordination problems in the labor market the probability of filling a vacancy is an increasing function of the wage offered in equilibrium firms that find vacancies more costly will offer higher wages the model thus explains the persistence of interindustry wage differentials and their correlation with industry average capital labor ratio and profitability additionally the model predicts that high wage firms will receive more applications per job opening and that wages in the labor market will behave as strategic complements

with a little help from my friends cross subsidy and installed base quality in the u s telecommunications industry abstract this article examines the effect of the cross subsidization process which is a key institutional mechanism in the telecommunications sector generally on enhancing the quality of the installed base of telecommunications infrastructure in the united states fiber optic and digital technology usage levels within local exchange carriers in the united states are used to capture installed base quality the results show that local exchange sector cross subsidization has a positive effect on new technology deployed in the installed base regulatory influences are also controlled for and the introduction of pure price cap schemes is shown to positively affect new technology quality where price cap schemes are introduced in conjunction with a mixed earnings sharing scheme or where only an earnings sharing scheme is introduced then the effect on new technology usage is much more mixed

entry and competitive structure in deregulated airline markets an event study analysis of people express this paper proposes an alternative approach to the study of competitive structure in deregulated airline markets that avoids some of the weaknesses of previous studies this approach uses reactions of incumbent airlines stock prices to announcements of entry by people express to shed light on competitive structure these stock reactions reveal significant route specific profits or sunk costs and also provide evidence on the degree of competitive localization present in the industry the conclusions emerging from this analysis are corroborated by an examination of price sales quantity and schedule changes that followed people express entry

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

using stock price information to regulate firms this paper examines the role of the information contained in stock prices in the regulation of privatized firms stock prices contain noisy but unbiased information about firm s future prospects that regulators can use to decide on some regulatory policies the main argument developed is that the observation of stock price movements reduces the incentives of regulators to develop their own monitoring technologies and can allow them to commit to relatively lighthanded regulations this protects firm s investments in cost reduction activities and can increase ex ante welfare this article is concerned with the analysis of the interactions between the public listing of regulated companies and their regulation the central idea is that public listing modifies the information structure of regulators and thus the regulation implemented some evidence can motivate this view

comparative analysis of firm demographics and survival evidence from micro level sources in oecd countries in this paper we present cross country evidence on firm size distribution firm demographic and post entry performance for 10 oecd countries we use harmonized firm level data drawn from business registers or social security records these data enable international comparisons and the identification of idiosyncratic country effects while average firm size differs across countries due to both sectoral specialization and within sector characteristics we find similar degrees of firm churning across countries in most of them about 20 of firms enter and exit most markets every year and about 20 40 of entering firms fail within the first 2 years of life however post entry growth of successful entrants is much higher in the usa than in europe which may be indicative of barriers to firm growth as opposed to barriers to entry

directed search and job rotation abstract we consider the impact of job rotation in a directed search model in which firm sizes are endogenously determined and match quality is initially unknown a large firm benefits from the opportunity to rotate workers so as to partially overcome the loss of mismatch as a result in the unique symmetric equilibrium large firms have higher labor productivity and lower separation rates in contrast to the standard directed search model with multi vacancy firms this model can generate a positive correlation between firm size and wage without introducing any ex ante productivity differences or imposing any non concave production function assumptions

the welfare impacts of discriminatory price tariffs this paper looks at the use of asymmetric tariffs as a regulatory instrument we use a monopolistic market setup with two markets and we introduce price controls in one of the two the purpose of the regulator is to maximise consumer welfare through this price discriminatory practice we consider cases where the welfare of the consumers in the two markets is weighted equally and cases where it is not in some cases we allow for the two markets to be linked through a monopsonistic input market the paper focuses on the welfare implications of this regulatory approach with the firm operating under a profit restriction results suggest that having only one price controlled market is in certain cases a good option from a welfare perspective

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

a theory of yardstick competition in the typical regulatory scheme a franchised monopoly has little incentive to reduce costs this article proposes a mechanism in which the price the regulatedfirm receives depends on the costs of identical firms in equilibrium each firm chooses a socially efficient level of cost reduction the mechanism generalizes to cover heterogeneous firms with observable differences medicare s prospective reimbursement of hospitals by using diagnostically related groups is a scheme very similar to the one outlined here

new firm survival new results using a hazard function a limitation of audretsch s 1991 study of new firm survival was the level of aggregation to industries this precluded linking establishment specific characteristics such as organizational structure and size to post entry performance the purpose of this paper is to relate the post entry performance of individual establishments not only to their technological and market structure environments but also to establishment specific characteristics we do this by estimating a hazard duration function for more than 12 000 individual establishments in u s manufacturing started in 1976 by tracking their subsequent performance over a ten year period we conclude that establishment specific characteristics which audretsch was not able to capture in his earlier study play an important role in shaping the exposure to risk confronting new establishments copyright 1995 by mit press

inverted u relationship between r d intensity and survival evidence on scale and complementarity effects in uk data existing evidence on the relationship between rd ii rd and iii creative destruction as proxied by median r d intensity in the industry and the premium on business lending have negative effects on firm survival other findings concerning age size productivity relative growth pavitt technology classes and the macroeconomic environment are in line with the existing literature the results are strongly or moderately robust to different samples stepwise estimations and controls for frailty and left truncation

price quality and regulation an analysis of price capping and the reliability of electricity supply abstract this paper examines the relationship between price cap regulation and the reliability of supply of a private monopoly two situations are considered one in which reliability is excluded from the price cap and one in which it is included if reliability is excluded it is shown that there is a tendency for the firm to protect profits by lowering reliability when cost increases must be absorbed whereas if reliability is included then this tendency is eliminated however this inclusion creates an incentive for the firm to exploit the positive relationship between price and reliability when cost increases can be passed on but this problem can be controlled by reducing the exogenous weight applied to reliability in the price cap formula

regulation asymmetric information and auditing this article analyzes a model of a regulated firm that is better informed about its cost function than is the regulator by auditing at a cost however the regulator is assumed to be able to observe the realized cost of the firm if the regulator finds that the firm had misrepresented its costs at the time at which prices were set he can order a refund to consumers in the optimal policy the regulator audits when the firm reports for pricing purposes that its costs will be high and orders a refund when the auditfinds that realized costs are lower than anticipated given the original report a separation result that obtains for an important case indicates that the initial pricing decision is independent of the auditing decision the auditing decision however depends on the price that was initially set the optimal auditing strategy is characterized and the nature of the welfare gains are identified the methodology used in the analysis involves the characterization of an equilibrium of a revelation game with an ex post observable

incentive regulatory policies the case of public transit systems in france we assess the empirical relevance of the new theory of regulation using a principal agent framework to study the regulatory schemes used in the french urban transport industry taking the current regulatory schemes as given the model of supply and demand provides estimates for the firms inefficiency the effort of managers and the cost of public funds it allows us to derive the first best and second best regulatory policies for each network and compare them with the actual situation in terms of welfare loss or gain fixed price policies lie between fully informed and uninformed second best schemes cost plus contracts are dominated by any type of second best contract from these results we may conjecture that fixed price contracts call for better informed regulators

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

price cap versus rate of return regulation in a stochastic cost model a stochastic cost model is used to show that both price cap and rate of return regulation lead to overinvestment in capital and to excessive managerial slack however they differ in stochastic versus fixed intervals between hearings and in the use of test year costs versus average costs since the previous hearing a numerical example illustrates that fixed intervals between hearings improve welfare if hearings are not held too frequently but most gains go to the firm more significantly the use of average cost data combined with fixed intervals results in dramatic welfare improvements with most gains going to consumers

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

cost reductions cost padding and stock market prices the chilean experience with price cap regulation we study the chilean electricity distribution industry and find that costs the ratio of reported costs to revenues have fallen since price caps were introduced cost reductions are u shaped since 1989 strong initial cost reductions reverse every four years coinciding with regulatory reviews a possible explanation is that firms are behaving strategically we then use stock market data to complement our study we construct a measure of cumulative abnormal returns for regulated firms around their quarterly announcements and a measure of naive cost expectations which excludes any indication of the occurrence of review periods in general cost reports in excess of naive cost expectations have a negative effect on returns even after we control for company fixed effects the exception is cost surprises that happen during review periods which increase abnormal returns the estimated effects fall over time this is consistent with the hypothesis of strategic firms and that the regulatory regime translates these games into higher rates in a way that is not completely anticipated by the market more generally the results suggest there may be value in complementing regulatory procedures with stock market information

wage vacancy contracts and multiplicity of equilibria in a directed search model of the labour market this paper studies a directed search model of the labour market which is standard in all aspects except two first we allow firms to post wage vacancy contracts advertising the number of workers they would pay as well as the payment all will receive second we consider two cases one where workers are risk neutral and one where workers are risk averse both in finite and large economies our paper shows that when firms post wage vacancy contracts whether workers are modelled as risk neutral or risk averse matters the types of symmetric equilibria and the nature of multiplicity of equilibria are different somewhat surprisingly when there are finite numbers of risk neutral workers and firms we obtain a finite number of symmetric equilibria but when workers are risk averse we obtain a continuum of equilibria furthermore our paper sounds a cautionary note on using large economies as an approximation of finite economies when workers are risk neutral the nature of equilibrium is preserved going from a finite to a large economy but the nature of equilibrium is different when workers are risk averse les contrats salaire emploi et la multiplicite des equilibres au sein d un modele de recherche dirigee applique au marche du travail cet article etudie un modele de recherche dirigee applique au marche du travail qui differe du modele standard en deux points premierement les entreprises peuvent proposer des contrats dits salaire emploi qui en plus du salaire indiquent le nombre de travailleurs qu un employeur est dispose a recruter deuxiemement nous considerons deux cas un ou les travailleurs ne presentent pas d aversion au risque et l autre ou ils sont averses au risque a chaque fois pour des economies avec une nombre fini puis infini d agents l article demontre que la presence ou non d aversion au risque a de l importance quand les entreprises peuvent proposer des contrats salaire emploi car les types d equilibres symetriques et la nature des multiplicites different dans les deux cas par exemple si l on considere une economie avec un nombre fini de travailleurs il existe un nombre fini d equilibres symetriques lorsque les travailleurs ne presentent pas d aversion au risque alors qu il en existe un continuum lorsque les travailleurs sont averses au risque qui plus est l article invite a la prudence en utilisant une economie a nombre infini d agents comme approximation d une economie peuplee d un nombre fini d agents car en allant de l une a l autre la nature des equilibres est preservee dans le cas de travailleurs ne presentant pas d aversion au risque alors qu elle change lorsque les travailleurs sont averses au risque

ex ante price offers in matching games non steady states a matching problem is considered in which sellers can publicly commit to a trading price that differs from the price at which buyers expect to trade elsewhere in the market when demand and supply are nearly equal the equilibrium ex ante price offer lies below the price associated with the nash bargaining split this relationship reverses when the level of excess demand is large sellers always have an incentive to make ex ante offers when prices elsewhere are determined by nash bargaining this can be interpreted to mean that nash bargaining is an unstable pricing institution copyright 1991 by the econometric society

asymmetric information incentives and price cap regulation a regulatory incentive mechanism is presented in which the regulated firm has superior information about both cost and demand compared to the regulator the mechanism leads to truthful revelation of the demand function and extracts all rents due to private demand information in a nondistorting way the scheme assumes that the regulator can observe lagged expenditures by the firm this mechanism leads to efficient pricing operating and investment behavior by the firm finally it is shown that the mechanism is closely related to recent proposals for price cap regulation and that under certain assumptions simple modifications of these proposals will lead to the mechanisms discussed herein

good regulatory regimes assuming simple functional forms numerical methods are used to analyze linear regulatory rules that include cost plus and price cap regimes regulators are assumed to observe actual cost but not the disutility of cost reduction and are assumed unable to impose taxes or make transfers best linear regimes depend importantly on the level and form of uncertainty the regulatory objective function and the firm profitability constraint under uncertainty regimes in which price depends in part on actual cost generally substantially outperform pure price caps particularly in terms of consumers surplus

incentive regulation of electricity distribution networks lessons of experience from britain this paper reviews the recent experience of the uk electricity distribution sector under incentive regulation the uk has a significant and transparent history in implementing incentive regulation in the period since 1990 we demonstrate the successes of this period in reducing costs prices and energy losses while maintaining quality of service we also draw out the lessons for other countries in implementing distribution sector reform we conclude by discussing the place of incentive regulation of networks within the wider reform context the required legislative framework the need for appropriate unbundling the importance of quality of service incentives the regulatory information requirements and the role of sector rationalisation

the regulation of privatized monopolies in the united kingdom this article examines the experience in the united kingdom with the regulation of privatized monopolies its conclusions are 1 that there are significant differences between rpi x or price cap and u s rate of return regulation which provides greater scope for bargaining in the former system 2 that u k regulators have taken seriously their duty to promote competition but that the existing economic literature is of limited help in this task 3 that price regulation is likely to be more effective where technology is changing slowly and or where technology is changing rapidly and 4 that the case for rpi x price cap rather than rate of return regulation is strongest in telecommunications gas supply and electricity supply and least strong in gas and electricity transmission grids

a long run survival analysis of corporate liquidations in ireland this paper examines the role of credit and the macroeconomy in small and medium enterprise sme distress during a prolonged economic downturn specifically we estimate the determinants of sme distress in ireland during the severe financial and economic crisis which began in 2007 2008 we use a measure of distress insolvencies which captures both bank and non bank forms of credit we conduct a survival analysis of insolvent liquidations and find that controlling for firm location and economic activity both variables capturing a build up of stress in the macroeconomy and those capturing bank credit standards and availability throughout the cycle are determinants of firm survival

directed search and optimal production abstract i consider a model of directed search where strategic sellers advertise general trading mechanisms a mechanism determines the number of buyers that will get served and the side payments as a function of ex post realized demand buyers observe these advertisements and visit one seller without being able to coordinate their visiting strategies despite the oligopolistic nature of the model all symmetric equilibria are constrained efficient in small markets multiple equilibria exist that are not payoff equivalent this indeterminacy vanishes as the market grows large i provide closed form solutions for equilibrium prices profits and the matching function under any parameter values

pricing and matching with frictions suppose that n buyers each want one unit and m sellers each have one or more units of a good sellers post prices and then buyers choose sellers in symmetric equilibrium similar sellers all post one price and buyers randomize hence more or fewer buyers may arrive than a seller can accommodate we call this frictions we solve for prices and the endogenous matching function for finite n and m and consider the limit as n and m grow the matching function displays decreasing returns but converges to constant returns we argue that the standard matching function in the literature is misspecified and discuss implications for the beveridge curve

product market and the size wage differential using directed search to model the product market and the labor market i show that large plants can pay higher wages to homogeneous workers and earn higher expected profit per worker than small plants although plants are identical except size a large plant charges a higher price for its product and compensates buyers with a higher service probability to capture this sizerelated benefit large plants try to become larger by recruiting at high wages this size wage differential survives labor market competition because a high wage is harder to get than a low wage moreover the size wage differential increases with the product demand when demand is initially low and falls when demand is already high

the economic regulation of private industries by price constraints regulation of some newly privatised industries in the uk has been implemented by restricting annual price increases this paper analyses the two forms which such regulation has taken the tariff basket approach applied to british telecom and the average revenue constraint imposed upon british gas and the british airports authority the incentives given by the tariff basket constraint to a profit maximiser are likely to result in a more efficient price structure than would occur under an average revenue constraint demonstrating that the former is generally a superior form of regulation

regulation with 20 20 hindsight heads i win tails you lose regulators are commonly accused of using 20 20 hindsight to punish a firm for bad outcomes rather than bad decisions it is often thought that such penalties lead to underinvestment by the firm i find that this expectation is not borne out when retrospective review is based on the firm s avoided costs in a joskow type model hindsight review mitigates the firm s tendency to build oversized risky projects moving the firm closer to the cost minimizing level of investment in a rate of return model the firm s allowed rate of return may have to be increased to keep expected profits nonnegative if this is done hindsight review does not affect the firm s investment level but it does correct the risk neutral firm s tendency to pay an excessive premium to eliminate construction cost uncertainty

meddling through regulating local telephone competition in the united states after a brief history of telecommunication policies and the development of local competition in the united states this paper analyzes the telecommunications act of 1996 and subsequent fcc and state regulatory decisions unfortunately these recent policy changes have generated pervasive intrusive regulations undermining the objectives the telecom act was intended to promote competition innovation and investment in telecommunications infrastructure states should allow incumbent local carriers to rebalance their retail rates and set interconnection prices based on actual costs federal policymakers should reduce and liberalize regulations allowing market forces more freedom to allocate resources and shape industry structure

dynamics of price regulation we study the dynamics of price regulation for an industry adjusting to exogenous technological progress first we characterize the optimal capacity path and replacement cycles in a neoclassical investment model second we show that naive rate ofreturn regulation which ignores components of economic depreciation eventually results in a deficient level of capacity due to excessively high retail prices burdened by the need to recover the underdepreciated costs of historical investments third we explain how price cap regulation leads to more efficient capital replacement decisions compared to naive rate of return regulation and we show how finite price cap horizons distort capital replacement finally we interpret recent regulatory reforms in telecommunications markets

the incidence of regulatory rents in the motor carrier industry this article focuses on two questions in the debate over motor carrier regulation first did regulation create eliminate or have no effect on monopoly rents in the trucking industry second ifthere were rents what was their incidence were they received by owners oftrucking firms dissipated through higher costs or captured by the teamsters union data on share price responses to deregulation announcements reveal declines in expected profits of 8 19 of totalfirm value this suggests that regulation created monopoly profits and indicates that at least some of these rents accrued to owners of trucking firms firms responses to regulatory change are modelled as functions of company s operating characteristics and measures of unionization operating efficiency and service characteristics are shown to affect the impact of deregulation on share values

strategic nonlinear pricing under price cap regulation we examine profit maximizing nonlinear pricing under a stylized version of the fcc s price cap plan for at t whereby the firm s average revenue in each period is constrained not to exceed some fixed level when average revenue in each period is calculated as the ratio of total revenue in that period to output in the preceding period as in the fcc s plan for at t incentives are created for the firm to engage in strategic nonlinear pricing these incentives can lower both consumers surplus and total surplus under price cap regulation we propose alternative implementations of price cap regulation that eliminate these incentives for strategic pricing we also examine whether current profits should influence future revisions of the cap we show that small amounts of such linkage can enhance total surplus due to pricing distortions that arise under price cap regulation

welfare effects of price discrimination by a regulated monopolist should a multiproduct monopolist whose average price is capped by regulation be allowed to engage in third degree price discrimination if the cap applies to a price index with weights proportional to demands at uniform prices then price discrimination benefits consumers as well as the firm but if perhaps more realistically it is the firm s average revenue that is capped then consumers prefer uniform pricing in this case total output is higher when discrimination is allowed which increases welfare but marginal utilities differ across markets which is inefficient and the overall effect is ambiguous a small amount of discrimination is desirable however it is better not to allow price discrimination if the price cap is close to the level of marginal cost the consequences of tightening the price cap when discrimination is allowed are also examined

heterogeneous firms and the organization of production firms in the same industry exhibit systematic differences in the organization of production and the structure of employment entrepreneurial ability is the specific scarce input that limits the size of a firm this input must be allocated to two activities coordinating production and monitoring workers able entrepreneurs can convert calendar time into larger supplies of coordinating effort that enable them to assemble large firms greater ability implies a higher shadow price of time which increases the implicit costs of monitoring a dispersion of entrepreneurial abilities generates an equilibrium size distribution of firms differences in monitoring costs affect the choice of worker productivities the design of products and the organization of production the monitoring cost hypothesis advanced in this paper goes a long way in explaining the equilibrium of an industry containing heterogeneous firms that differ in size and behavior

the dynamic efficiency of regulatory constitutions in this article we model regulation as a repeated game between a utility facing a random sequence of demands and a regulator tempted to underreward past investment rate of return regulation designed with a constitutional commitment to an adequate rate of return on capital prudently invested is able to support an efficient investment program as a subgame perfect nash equilibrium for a larger set of parameter values than rate of return regulation without such a commitment furthermore rate of return regulation is superior to price regulation according to the same criterion assuming that the regulator is unable to make state contingent transfer payments

diversification incentives under price based and cost based regulation this article considers two schemes of regulationforfirms that serve both monopoly markets and markets subjected to substantial competition the first form cost based regulation combines elements of rate of return regulation on monopoly markets with filly distributed cost pricing much like the form of regulation currently in place in the domestic telephone industry the secondform price based regulation would establish rate caps on noncompetitive services and allow the firm to enter into competitive markets and charge whatever prices it might like in those markets models of both forms of regulation are developed and analyzed with respect to incentives for cost misreporting choice of technology cost reducing innovation choices of prices and output levels and diversification into competitive markets

optimal departures from marginal cost pricing focuses on departures from marginal cost pricing optimal allocation or resources level of tax revenue that will be collected by the government theorems developed for resource allocation ebsco

industry input in policy making evidence from medicare in setting prices for physician services medicare solicits input from a committee that evaluates proposals from industry the committee itself comprises members from industry we investigate whether this arrangement leads to regulatory capture with prices biased toward industry interests we find that increasing a measure of affiliation between the committee and proposers by one standard deviation increases prices by 10 we then evaluate whether employing a biased committee as an intermediary may nonetheless be desirable if greater affiliation allows the committee to extract information needed for regulation we find industry proposers more affiliated with the committee produce less hard evidence in their proposals however on soft information we find evidence of a trade off private insurers set prices that more closely track medicare prices generated under higher affiliation

low powered vs high powered incentives evidence from german electricity networks abstract we propose a difference in differences approach to estimating the impact of incentives on cost reduction in the context of german electricity networks when subject to a lower powered regulation mechanism relatively more efficient operators pile up more costs in the year used to determine future prices this pattern is consistent with the idea that incentives matter higher powered incentives lead to cost reduction the results are also consistent with an equilibrium where more efficient firms pool with less efficient ones under the threat of ratcheting