Allocative Inefficiency Properties of Price-Cap Regulation

Werner Neu

Journal of Regulatory Economics, 1993, vol. 5, issue 2, 159-82

Abstract: The paper deals with the argument that a price-cap regulated firm maximizing profits under the price-cap constraint will set prices that over time approach the Ramsey structure. My analysis explores the effects of price caps on the structure of prices. The results are in important aspects at variance with the claim of convergence to a Ramsey structure. Copyright 1993 by Kluwer Academic Publishers

Date: 1993
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