stopping agents from cheating abstract when a principal hires two or more agents to work in a correlated environment each agent s reward will depend on the other s performance unfortunately with just the usual optimal incentive constrained contracts being offered the agents strictly prefer to play equilibrium strategies other than those desired by the principal they cheat however the principal can use a more subtle contractual mechanism to stop them from cheating at no extra cost this mechanism uses one agent to police the other and exploits certain properties of the optimal contracts

the curious case of corporate tax avoidance is it socially irresponsible in contrast to many aspects of the social responsibility of business csr scholarship has been largely silent on the issue of the payment of corporate tax this is curious because such tax payments are often considered a fundamental and easily measured example of a company s citizenship behavior however because the payment of corporate tax can often be legally avoided this activity represents a boundary condition for csr if the law and csr suggest that a company should pay its fair share of tax yet many successful companies actively avoid this social obligation should they be considered socially irresponsible this paper explores the issue of tax avoidance and the implications it has for any credible definition and measure of csr it also highlights an aspect of corporate practice that is deliberately hidden from public view

burr under the saddle how media coverage influences strategic change in this paper we introduce a new antecedent to the strategic change literature by examining the effect of media coverage on the extent of strategic change specifically we examine how negative media coverage may prompt firms to make changes to their resource allocations and then explore how the makeup of the board and firm performance can moderate this relationship we develop a theoretical framework to explain why media coverage may affect strategic change and then test our theory with a longitudinal analysis of 250 firms over a four year period the empirical results lend support to our theory of media influence on strategic change and suggest that the evaluations of firms by outside constituents may influence the decision making of executives

what does tax aggressiveness signal evidence from stock price reactions to news about tax shelter involvement abstract we study the stock price reaction to news about corporate tax aggressiveness we find that on average a company s stock price declines when there is news about its involvement in tax shelters we find some limited evidence for cross sectional variation in the reaction for example the reaction is more negative for firms in the retail sector suggesting that part of the reaction may be a consumer taxpayer backlash in addition the reaction is less negative for firms that are viewed to be generally less tax aggressive as proxied by the firm s cash effective tax rate we interpret this as being consistent with the market reacting positively to evidence that a firm is trying to reduce taxes when their financial reports would lead one to believe the firm is not tax aggressive

is corporate social responsibility performance associated with tax avoidance this study examines whether corporate social responsibility performance is associated with corporate tax avoidance employing a matched sample of 434 firm year observations i e 217 tax avoidant and 217 non tax avoidant firm year observations from the kinder lydenberg and domini database over the period 2003 2009 our logit regression results show that the higher the level of csr performance of a firm the lower the likelihood of tax avoidance our results indicate that more socially responsible firms are likely to display less tax avoidance finally the results from our additional analysis show that the csr categories community relations and diversity represent particularly important elements of csr performance that reduce tax avoidance

inter linking issues and dimensions in sustainability reporting during the last decade sustainability reporting sr has been increasingly adopted by corporations worldwide this is evidenced by the adoption of several guidelines such as the iso 14000 series the social accountability 8000 standard and the gri sustainability guidelines sr shows promise to help corporate leaders and their employees to contribute towards achieving sustainable societies however most of the guidelines and standards address sustainability issues through comparmentalisation thereby leading to the separation of the economic environmental and social dimensions due to these divisive approaches holistic assessments of the effects of their efforts are seldom properly integrated into coporate decisions and procedures to make improvements for example through cleaner production worker health and safety consumer safety and reductions in the negative short and long term social and environmental impacts this paper analyses sr reports from three companies with the help of grounded theory s constant comparative analysis this analytical framework helped the authors to systematically assess the degree to which the companies addressed economic ecological and social issues separately or in an integrated and inter linked manner from the inter linkages found a new category is proposed to be added to future sr this new category can help corporate sr planners and researchers on sustainability reports to better understand how the company leaders understand their responsibilities with regard to sd these inter connectednesses are highly relevant in many short and long term dimensions of supply chain management global warming ecological disruption and societal equity issues especially with regard to the local national and global energy issues of fuels and oils the central themes of the conference at which this paper was originally presented it also plays a key role in real long term changes towards sustainability where the time dimension plays a key role in human survival on planet earth

cultural influence on the development of accounting systems internationally a test of gray s 1988 theory this paper attempts to test the theory developed by gray 1988 linking accounting values and systems with hofstede s 1980 cultural constructs based on data from twenty nine countries it finds that while gray s 1988 model has statistically significant explanatory power it is best at explaining actual financial reporting practices and is relatively weak in explaining extant professional and regulatory structures from a cultural base this paper further finds that both the development of financial markets and levels of taxation enhance the explanations offered by gray 1988

multidimensional incentive compatibility and mechanism design abstract incentive compatibility conditions are characterized in general for problems in which several goods are to be allocated and agents types are multidimensional two questions of monopoly pricing under multidimensional uncertainty are then analyzed first we find the optimal nonlinear pricing scheme when the monopolist knows only the distribution of an arbitrarily parameterized family of demand curves and second we solve for the optimal bundling policy for a multiproduct monopolist

incentive schemes with multiple agents and bankruptcy constraints abstract we explore the effects of bankruptcy constraints on incentive schemes when two risk neutral agents operate in correlated environments our focus is on the subgame equilibrium in which each agent is induced via a direct mechanism to truthfully reveal his private information as a nash response to truth telling by his counterpart we identify a class of examples in which in contrast to the case where the agents are risk averse the nash constraints induce a subgame dominant strategy equilibrium thus implementation via direct mechanisms is feasible for this class more generally however the truth telling nash equilibrium may be subgame dominated so the question of implementation via direct mechanisms remains a delicate one

responsibility in paradise the adoption of csr tools by companies domiciled in tax havens in contrast to the recent rise to economic importance of offshore finance centres ofcs the topic of taxation has so far created little interest among scholars of corporate social responsibility csr this paper makes two contributions to addressing this lacuna applying a range of influential normative theories of ethics it first offers an ethical evaluation of tax havens second the paper examines what use large firms that are headquartered in two ofcs bermuda and the cayman islands make of formal csr tools the emerging duplicity in tax haven based companies professing social responsibility highlights once more the political nature of csr where at least some firms and or industries can successfully limit government power to enact regulation as well as shape the discourse around csr the study of csr in ofc based firms thus calls into question the usefulness of the often quoted definition of csr as going beyond the law

supply chain specific understanding the patchy success of ethical sourcing initiatives as a number of high profile companies have found to their cost corporate reputations can be significantly affected by firms management of sustainability issue including those that are outside their direct control such as the environmental and social impacts of their supply networks this paper begins by examining the relationship between corporate social responsibility reputation and supply network conditions it then looks at the effectiveness of one tool for managing supply network sustainability issues ethical sourcing codes of conduct by examining how the characteristics of three supply networks branded clothes diy wood products and branded confectionary affects the implementation ethical sourcing codes of conduct it ends by setting out conclusions on why implementation of such codes has been so much more successful in some sectors than others and recommendations on effective approaches to managing sustainability issues in supply networks

developing difference social organization and the rise of the auto industries of south korea taiwan spain and argentina theories of economic development as diverse as modernization dependency world system and market reform take a critical factor view proponents of each theory argue that countries fail to develop because of an obstacle to economic growth we argue instead that neither a critical factor nor a single path leads to economic development viable paths vary economic growth depends on linking a country s historically developed patterns of social organization to the opportunities of global markets we formulate a sociological theory of cross national comparative advantage including not only economic factor endowments but also institutionalized patterns of authority and organization such patterns legitimize certain actors and certain relationships among those actors which facilitate development success in some activities but not in others we illustrate this approach to understanding development outcomes with a comparative analysis of the difficult rise of the automobile assembly and components industries in south korea taiwan spain and argentina

patenting and licensing university inventions lessons from the history of the research corporation recent developments in the relationships between r d in us industry and research in us universities especially in the growth of university patenting and licensing of technologies to private firms have attracted considerable attention this paper discusses the history of an important institution in the history of these relationships the research corporation the ultimate withdrawal of the research corporation from its major role reflected shifting federal policies towards philanthropic organizations as well as the bayh dole act the evidence provided in this paper however suggests that the seeds of decline had been planted well before 1980 and were apparent in the growing deficits of the research corporation during the 1970s since some of these factors are also apparent within many us university licensing offices it is likely that some shake out will occur in the future as a number of these universities reduce or terminate their activities in this area those that survive are likely to pursue a broader set of goals than royalty income alone copyright 2001 by oxford university press

can an industry be socially responsible if its products harm consumers the case of online gambling online gambling companies claim that they are ethical providers they seem committed to corporate social responsibility csr practices that are aimed at preventing or minimising the harm associated with their activities our empirical research employed a sample of 209 university student online gamblers who took part in an online survey our findings suggest that the extent of online problem gambling is substantial and that it adversely impacts on the gambler s mental and physical health social relationships and academic performance online problem gambling seems to be related to the time spent on the internet and gambling online parental peer gambling and binge drinking as our findings show that there are harmful repercussions associated with online gambling we argue that companies in this controversial sector cannot reach the higher level of csr achieved by other industries nevertheless they can gain legitimacy on the basis of their csr engagement at a transactional level and so by meeting their legal and ethical commitments and behaving with transparency and fairness the integrity of the company can be ensured we also argue that current failures in the implementation and control of csr policies the reliance on revenue from problem gamblers losses and controversial marketing activities appear to constitute the main obstacles in the prevention or minimisation of harm related to online gambling as online gambling companies must be responsible for the harm related to their activities we suggest that csr policies should be fully implemented monitored and clearly reported all forms of advertising should be reduced substantially and unfair or misleading promotional techniques should be banned the industry should not rely on revenue from problem gamblers nor should their behaviour be reinforced by marketing activities i e rewards we realise however that it is unrealistic to expect the online gambling industry to prioritise harm prevention over revenue maximisation policy makers and regulators therefore would need to become involved if the actions suggested above are to be undertaken csr is paramount to minimise harm and provide a healthier user experience in this business sector but it also poses marketing dilemmas we support a global collaborative approach for the online gambling industry as harm related to gambling is a public health issue

is corporate responsibility converging a comparison of corporate responsibility reporting in the usa uk australia and germany corporate social reporting while not mandatory in most countries has been adopted by many large companies around the world and there are now a variety of competing global standards for non financial reporting such as the global reporting initiative and the un global compact however while some companies e g henkel bhp johnson and johnson have a long standing tradition in reporting non financial information other companies provide only limited information or in some cases no information at all previous studies have suggested that there are country and industry specific differences in the extent of csr reports e g kolk et al 2001 business strategy and the environment10 15 28 kolk 2005 management international review45 145 166 maignan and ralston 2002 journal of international business studies33 3 497 514 however findings are inconclusive or contradictory and it is often difficult to compare previous studies owing to the idiosyncratic methods used in each study graafland et al 2004 journal of business ethics53 137 152 furthermore previous studies have relied mainly on simple measures such as word counts and page counts of reports to compare the extent of reporting that may not capture significant differences in the content of the reports in this article we seek to overcome some of these deficiencies by using textual analysis software and a more robust statistical method to more objectively and reliably compare the csr reports of firms in different industries and countries we examine a sample of leading companies in four countries us uk australia and germany and test whether or not membership of the global compact makes a difference to csr reporting and is overcoming industry and country specific factors that limit standardization we conclude that globalcompact membership is having an effect only in certain areas of csr reporting related to the environment and workers and that businesses from different countries vary significantly in the extent to which they promote csr and the csr issues that they choose to emphasize in their reports these country differences are argued to be related to the different institutional arrangements in each country

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

is the international business research agenda running out of steam this research note challenges international business researchers to think of their future work in terms of the past achievements of their discipline it identifies three key research areas corresponding to attempts to tackle crucial empirical questions the explanation of foreign direct investment the multinational firm and the globalization of business it ends by considering the future research agenda

reconsidering the bayh dole act and the current university invention ownership model abstract the bayh dole act of 1980 provided u s universities with the right to commercialize employees inventions made while engaged in government funded research this paper argues that the current university invention ownership model in which universities maintain de jure ownership of inventions is not optimal either in terms of economic efficiency or for advancing the social interest of rapidly commercializing technology and encouraging entrepreneurship we argue that this model is plagued by ineffective incentives information asymmetries and contradictory motivations for the university the inventors potential licensees and university technology licensing offices tlos these structural uncertainties can lead to delays in licensing misaligned incentives among parties and obstacles to the flow of scientific information and the materials necessary for scientific progress the institutional arrangements within which tlos are embedded have encouraged some of them to become revenue maximizers rather than facilitators of technology dissemination for the good of the entire society we suggest two alternative invention commercialization models as superior alternatives the first alternative is to vest ownership with the inventor who could choose the commercialization path for the invention for this privilege the inventor would provide the university an ownership stake in any returns to the invention the inventor would be free to contract with the university tlo or any other entity that might assist in commercialization the second alternative is to make all inventions immediately publicly available through a public domain strategy or through a requirement that all inventions be licensed non exclusively both alternatives would address the current dysfunctional arrangements in university technology commercialization

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

going to haven corporate social responsibility and tax avoidance this study examines the endogenous relation between corporate social responsibility csr and tax avoidance by focusing on a common strategy of corporate tax avoidance i e establishing entities in offshore tax havens using hand collected data on a sample of u s firms we find that firms csr ratings increase substantially in the two years after they first open tax haven affiliates we provide evidence by using the controlled foreign corporations cfc look through rule enacted by congress in 2006 that facilitates offshore profit shifting we find that firms that are affected by the cfc legislation increase their csr practices in response overall our results are consistent with the risk management theory which argues that firms hedge against the potential negative consequences of aggressive tax avoidance practices through an increase in positive csr activities

multi firm regulation without lump sum taxes abstract this paper considers a problem of multi firm regulation where the regulator cannot make monetary transfers to or from firms otherwise the set up is standard two firms charging two part tariffs sell in separate markets and marginal costs are private information without transfers the regulator faces an additional consumer participation constraint that the representative consumer must wish to participate in the market in all states the paper studies the second best optimal regulatory scheme that respects this constraint and shows that it has some surprising properties i the regulator may wish to drive informational rents down to zero even at the cost of some price distortion ii consumer surplus may be zero in some states and iii the price that one firm charges is decreasing in the other s cost

globalization and ngos transforming business government and society journal of international business studies 2004 35 564 566 doi 10 1057 palgrave jibs 8400114 it is both easy and hard to define something by what it is not ngos by their title are non governmental organizations in other words all organizations that are not governments that is the easy definition the problem is that ngos by this definition include everything but the proverbial kitchen sink that is private firms religious and charitable organizations universities advocacy groups newspapers and other media and so on doh and teegen s book globalization and ngos transforming business government and society is designed to reduce this open endedness by focusing on what ngos are rather than what they are not the book has three cross cutting themes what are ngos how and why they differ from governments and firms and how they operate in the global economy fit within societies and influence other organizations there are 10 chapters in the book which explore the rise of ngos and their impacts on governments and firms several nice case studies are included global climate change world wildlife fund genetically modified organisms trade policy and forestry the conclusions chapter sums up and provides a research agenda jone pearce in her forward to the book defines ngos as the name given to those nonprofit associations focused on social change via political influence or to those providing social and humanitarian services in highly politicized cross national contexts p xi doh and teegen in their conclusion chapter define ngos as organizations of individuals and donors committed to the promotion of a particular set of issue s through advocacy work and or through operational activities whereby services are delivered pp 206 207 ngos are seen as one of three key actors in the global economy together with governments and firms ngos not only have their own dyadic relationships with the other two actors but also mediate and moderate the business government dyad doh and teegen argue that ngos are agents for change in the global economy therefore scholars and practitioners need to focus more on understanding which ngos matter how firms and governments should best engage ngos and how ngos can play a more definitive role on supranational issues that the public and private sectors have failed to address journal of international business studies 2004 35 564 566 2004 palgrave macmillan ltd all rights reserved 0047 2506 30 00

regulation competition and asymmetric information abstract this article studies a model of regulation under asymmetric information when there exists a competitive fringe of unregulated alternative producers the correlation between the unknown cost parameters of the fringe and of the regulated firm allows the regulator to use the threat of entry by the fringe to reduce the informational cost of regulation the presence of the fringe is welfare enhancing the allocative distortions can be larger or smaller than those in the no fringe case and the optimal contract sometimes allows inefficient entry the optimal contract can exhibit non standard bunching phenomena and discontinuities

taboo or technical issue an empirical assessment of taxation in sustainability reports abstract prior literature offers mixed evidence on the existence of a link between corporate taxation and corporate social responsibility csr this article contributes to this debate by examining the level of tax disclosure in sustainability reports by firms listed in the united states the united kingdom and germany from 2007 to 2012 the aim is to offer micro level evidence of whether firms themselves perceive corporate tax payments as being part of their csr on the basis of a hand collected 540 firm year dataset of ninety publicly listed firms the article shows that the level of tax disclosure was rather low however it did increase over time and was most prevalent in the united kingdom moreover the reports indicate considerable variation in attitudes toward taxation overall the widespread silence on tax issues and a non uniform treatment of taxation in sustainability reports underline the complex role of tax payments when it comes to csr examination of determinants of disclosure shows that firms with lower effective tax rates negative media coverage in tax matters and industry specific stakeholder pressure were generally more inclined to disclose tax information which is in line with predictions based on stakeholder and legitimacy theory finally the article discusses the importance of cultural and social norms when it comes to tax related sustainability reporting and provides theoretical as well as regulatory implications

optimal incentive contracts with multiple agents abstract a setting in which a single principal contracts with two agents who possess perfect private information about their own productivity is considered with correlated productivities each agent s private information also provides a signal about the other agent s productivity in contrast to the setting in which there is only one agent it is shown that such private information may be of no value to the agents it is only if the agents are risk averse that their private information may allow them to command rents moreover when the agents are constrained only to reveal their private information truthfully as a nash equilibrium the pareto optimal incentive scheme may induce the agents to adopt strategies other than truth telling this leads to the consideration of truth telling equilibria that are not pareto dominated in the subgame played by the agents among all such equilibria the one preferred by the principal restricts one agent to tell the truth as a dominant strategy and the other as a nash response to truth

factors influencing voluntary annual report disclosures by u s u k and continental european multinational corporations this study examines factors influencing the voluntary disclosures of three types of information strategic nonfinancial financial contained in the annual reports of mncs from the u s u k and continental europe while company size country region listing status and to a lesser extent industry are the most important factors explaining voluntary disclosures overall the importance of the factors varies by information type

learning from one another international policy emulation and university industry technology transfer cross border emulation of economic and technology policies among industrial economy governments has become common in recent years and spans policies ranging from intellectual property rights to collaborative r d recent initiatives by a number of industrial economy governments suggest considerable interest in emulating the bayh dole act of 1980 a piece of legislation that is widely credited with stimulating significant growth in university industry technology transfer and research collaboration in the united states i examine the effects of bayh dole on university industry collaboration and technology transfer in the united states emphasizing the lengthy history of both activities prior to 1980 and noting the extent to which these activities are rooted in the incentives created by the unusual scale and structure by comparison with western europe or japan of the us higher education system efforts at emulation of the bayh dole policy by other governments are likely to have modest success at best without greater attention to the underlying structural differences among the higher education systems of these nations copyright 2011 the author 2011 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

the ethical foundations of responsible investment in the area of investment responsibility may be expressed via four types of ethical concern value based ethics resulting in the exclusion of so called vicious companies from the investment portfolio fructification oriented ethics with a view to long term investment consequence based ethics aimed at initiating a behavioural change in the investment target and ethics envisaged as a discriminating criterion in the search of the best financial performance no single formula of responsible investment is available and the responsible approach necessarily implies the active involvement of a free acting subject striving to tackle fundamental ethical issues the practice of responsible investment cannot be reduced to simply applying a particular legal rule or mathematical formula

tax avoidance as a sustainability problem this manuscript proposes that tax avoidance can be better understood and mitigated as a sustainability problem tax avoidance is not just a financial problem for tax authorities but one that erodes critical common spaces necessary for the smooth functioning of regulatory compliance organizational integrity and society defining tax avoidance as a sustainability problem offers a broader and more holistic understanding of the organizational and societal consequences of tax avoidance behavior sustainability is also a mature and legitimized concept that can readily incorporate taxation a variety of established sustainability metrics have the capacity to incorporate anti tax avoidance measures or publicize firms that engage in fair tax practices this manuscript concludes that integrating sustainability principles in conjunction with important extant work on corporate social responsibility and taxation can advance the goals of decreasing the occurrence and acceptability of tax avoidance

aggressive tax avoidance by managers of multinational companies as a violation of their moral duty to obey the law a kantian rationale managers of multinational companies often favour an aggressive tax avoidance strategy that pushes the legal limits onto the advantage of shareholders and the disadvantage of the spirit of democratically legitimized tax laws the public and media debate whether such aggressive behaviour is immoral aggressive tax avoidance is a subset of the aggressive legal interpretations potentially observable in all fields which places little weight on the will of a democratically legitimized legislation a thorough ethical analysis based on the deontological approach of kant demonstrates that aggressive tax avoidance as a special case of operating on the edge of legal boundaries is potentially immoral applying the kantian contradiction of conception or will test shows that this maxim might not be conceived or willed as a general law of nature if all natural or legal persons aggressively interpret laws on all subjects and in every imaginable situation then central principles of the system of law we all rely upon would be severely compromised therefore aggressive tax avoidance by managers of multinational companies may violate the managers moral duty to obey not only the letter but also the intention or spirit of the law the validity of the argumentation depends critically on the formulation and interpretation of the respective maxims and on assumptions about the legal system preserving central elements of kantian philosophy the article demonstrates the complexity of a philosophical argumentation which tries to justify the moral intuitions that underpin the common negative evaluation of aggressive legal strategies in business

corporate social responsibility in europe and the u s insights from businesses self presentations the paper compares the extent and content of businesses communications about corporate social responsibility csr in france the netherlands the u k and the u s in particular the study investigates the nature of csr principles processes and stakeholder issues discussed in web pages the results show that businesses in the four countries do not display the same eagerness to appear as socially responsible and employ diverse means to convey social responsibility images

do corporate codes of ethics reflect national character evidence from europe and the united states this paper analyses the usage and contents of corporate codes of ethics the results from a sample of 600 large european companies are contrasted with findings reported for similar u s firms the comparison reveals that significantly fewer european than u s firms adopted codes of ethics in europe the large majority of codes have been introduced only very recently and there are indications that codes made their way into europe via subsidiaries of u s firms however there are striking differences in content between u s and european codes of ethics pointing to the existence of a distinctly european approach to codifying ethics

regulating a monopolist with unknown costs we consider the problem of how to regulate a monopolistic firm whose costs are unknown to the regulator the regulator s objective is to maximize a linear social welfare function of the consumers surplus and the firm s profit in the optimal regulatory policy prices and subsidies are designed as functions of the firm s cost report so that expected social welfare is maximized subject to the constraints that the firm has nonnegative profit and has no incentive to misrepresent its costs we explicitly derive the optimal policy and analyze its properties in their classic papers dupuit 2 and hotelling 5 considered pricing policies for a bridge that had a fixed cost of construction and zero marginal cost they demonstrated that the pricing policy that maximizes consumer well being is to set price equal to marginal cost and to provide a subsidy to the supplier equal to the fixed cost so that a firm would be willing to provide the bridge this first best solution is based on a number of informational assumptions first the demand function is assumed to be known to both the regulator and to the firm while the assumption of complete information may be too strong the assumption that information about demand is as available to the regulator as it is to the firm does not seem unnatural a second informational assumption is that the regulator has complete information about the cost of the firm or at least has the same information about cost as does the firm this assumption is unlikely to be met in reality since the firm would be expected to have better information about costs than would the regulator as weitzman has stated an essential feature of the regulatory environment i am trying to describe is uncertainty about the exact specification of each firm s cost function in most cases even the managers and engineers most closely associated with production will be unable to precisely specify beforehand the cheapest way to generate various hypothetical output levels because they are yet removed from the production process the regulators are likely to be vaguer still about a firm s cost function 12 p 684 as this observation suggests it is natural to expect that a firm would have better information regarding its costs than would a regulator the purpose of this paper is to develop an optimal regulatory policy for the case in which the regulator does not know the costs of the firm one strategy that a regulator could use in the absence of full information about costs is to give the firm the title to the total social surplus and to delegate the pricing decision to the firm in pursuing its own interests which would then be to maximize the total social surplus the firm would adopt the same marginal cost pricing strategy that the regulator would have imposed if the regulator had