Fare Evasion and Monopoly Regulation

Martin Besfamille, Nicolás Figueroa and León Guzmán

No 9592, CESifo Working Paper Series from CESifo

Abstract: We consider the regulation of a monopoly facing consumers that may evade payments, an important issue in public utilities. To maximize total surplus, the regulator sets the price and socially costly transfers, ensuring that the monopoly breaks-even. With costly effort, the firm can deter evasion. Under unit demand and fixed quality, price is independent of marginal cost, but increasing in the marginal cost of public funds. When quality is endogenous, we find sufficient conditions that imply a non-monotonic relation between price and marginal cost of public funds. We extend the model to consider non-unit demand and moral hazard.

Keywords: regulation; natural monopoly; evasion; marginal cost of public funds (search for similar items in EconPapers)
JEL-codes: D42 H20 L43 L51 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-law, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Fare Evasion and Monopoly Regulation (2022)
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