Dynamic Natural Monopoly Regulation: Time Inconsistency, Asymmetric Information, and Political Environments

Ali Yurukoglu and Claire Lim
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Claire Lim: Cornell University

No 530, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies time inconsistency, asymmetric information, and political ideology in natural monopoly regulation of electricity distribution companies. Empirically, more conservative political environments have higher regulated rates of return and worse operational efficiency as measured by electricity lost in distribution. Capital investment improves reliability in a cost effective manner. We estimate a dynamic game theoretic model of utility regulation featuring investment and asymmetric information. Under-investment due to time inconsistency is severe. Conservative regulators improve welfare losses due to time inconsistency, but worsen losses due to asymmetric information.

Date: 2014
New Economics Papers: this item is included in nep-cta, nep-dge, nep-ene, nep-ind and nep-reg
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:red:sed014:530

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