Motivating regulated suppliers to assess alternative technologies, protocols, and capital structures

Mark Jamison, David Mandy () and David Sappington

International Journal of Industrial Organization, 2014, vol. 37, issue C, 13-22

Abstract: Regulated firms can be tempted to adopt cost-saving technologies, operating procedures, or capital structures without fully assessing the associated risks. We demonstrate how a regulator can costlessly preclude such behavior if she can impose substantial penalties on the firm in the event of poor realized performance. When these penalties are more limited, the regulated firm secures rent from its privileged ability to assess the riskiness of potential technologies. If these penalties are sufficiently limited, the regulator optimally affords the firm no choice among technologies. Consequently, the regulated firm prefers moderate penalties to very limited penalties.

Keywords: Regulatory policy design; Information acquisition; Inducing efficient technologies (search for similar items in EconPapers)
JEL-codes: D8 G3 L5 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:37:y:2014:i:c:p:13-22

DOI: 10.1016/j.ijindorg.2014.07.002

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