A Modified Yardstick Competition Mechanism

Georg Meran and Christian Hirschhausen

No 2006-05, Working Papers from Center for Network Industries and Infrastructure (CNI)

Abstract: This paper analyzes a modified yardstick competition mechanism (MYC), where the yardstick employed consists of a tariff basket and total costs. This mechanism has a significant information advantage: the regulator ”only” needs to observe total costs and output of all firms. The modified yardstick competition mech- anism can ensure a socially optimal outcome when allowing for spatial and second degree price discrimination, without increas- ing the informational requirements. We also introduce regulatory lags in the model. A systematic comparison between the results of traditional yardstick regulation and modified yardstick regu- lation is carried out. Finally, we discuss the applicability of the mechanism.

Keywords: regulation; yardstick competition; mechanism design; information asymmetry (search for similar items in EconPapers)
JEL-codes: D40 L11 L51 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2006
New Economics Papers: this item is included in nep-com and nep-reg
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Related works:
Journal Article: A modified yardstick competition mechanism (2009)
Working Paper: A Modified Yardstick Competition Mechanism (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:cni:wpaper:2006-05

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