 Commitment in utility regulation: A model of reputation and policy applicationsJournal of Economic Behavior & Organization, 2013, vol. 89, issue C, 210-231 Abstract: This paper builds a dynamic model of utility regulation where a government cannot commit to a time-inconsistent policy of not expropriating investment. By allowing the government’s type to change over time, I explore how reputation concerns may generate partial commitment. Restricting attention to equilibria that are strongly renegotiation proof, I show that there is a unique perfect Bayesian equilibrium. This contains episodes of investment and good behaviour followed by periods of expropriation and non-investment. I then apply the model to consider how the power of the incentive scheme and decentralization may influence the properties of this equilibrium. In the case of the power of incentives, the model suggests that price-caps may worsen commitment in developing countries, but not in developed ones. Similarly, the model suggests that decentralisation is likely to have a significant effect on commitment, but that this effect will depend on the general ability of the government to commit. Overall, we conclude that the effect of such policies on commitment will be different across countries, depending on the institutional environment. Keywords: Reputation; Commitment; Regulation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:89:y:2013:i:c:p:210-231 DOI: 10.1016/j.jebo.2011.05.014 Access Statistics for this article Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D. More articles in Journal of Economic Behavior & Organization from Elsevier |
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