QUALITY‐CORRECTED PRICE CAPS
Bulletin of Economic Research, 2007, vol. 59, issue 3, 255-268
Although price caps have desirable efficiency properties, it is well known that they may create incentives for a regulated firm to attempt to lower its costs via reductions in service quality. Thus, the regulators often employ quality standards or other methods designed to have allowed prices reflect delivered service quality levels. In this paper, we present a system of quality‐corrected price caps that results in efficient pricing and quality provision.
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