Profit Sharing and Investment by Regulated Utilities: a Welfare Analysis

Michele Moretto, Paolo Panteghini and Carlo Scarpa

No 59, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: We analyse the effects of different regulatory schemes (price cap and profit sharing) on a firm's investment of endogenous size. Using a real option approach in continuous time, we show that profit sharing does not delay a firm's start-up investment relative to a pure price cap scheme. Profit sharing does not necessarily affect total investment either, if the threshold for profit sharing is high enough. Only a profit sharing intervening for low profit levels may delay further investments. We also evaluate the effects of profit sharing on social welfare, determining the level of profit that should optimally trigger tighter regulation: profit sharing should be less stringent in sectors where there are bigger investment opportunities.

Keywords: regulation; investment; profit sharing; real options; RPI-x (search for similar items in EconPapers)
JEL-codes: D81 D92 G31 L51 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2007-11
New Economics Papers: this item is included in nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://economia.unipd.it/sites/economia.unipd.it/files/20070059.pdf (application/pdf)

Related works:
Journal Article: Profit sharing and investment by regulated utilities: A welfare analysis (2008)
Journal Article: Profit sharing and investment by regulated utilities: A welfare analysis (2008)
Working Paper: Profit Sharing and Investment by Regulated Utilities: A Welfare Analysis (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0059

Access Statistics for this paper

More papers in "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno" Contact information at EDIRC.
Bibliographic data for series maintained by Raffaele Dei Campielisi ().