Public Firms as Regulatory and Auditing Instruments

Devon Garvie and Roger Ware ()

No 809, Working Paper from Economics Department, Queen's University

Abstract: We re-examine the regulatory role of a public firm in an environment of private but correlated information about industry costs. We study three regimes of mixed market interaction involving both public and private firms: a symmetric Bayesian-Nash equilibrium, an asymmetric Bayesian equilibrium in which the public firm is able to commit to production before the private firms and a mechanism in which the regulator designs an incentive compatible schedule for the industry. We find that a public firms plays an important strategic informational role which strengthens its role as a disciplinary regulatory instrument. Further, we find that this strategic informational role is considerably enchanced as we move from indirect regulatory schemes to direct regulation.

Pages: 38 pages
Date: 1991-03
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http://qed.econ.queensu.ca/working_papers/papers/qed_wp_809.pdf First version 1991 (application/pdf)

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