Time Delay and the Extraction of Information Rent in Regulation

Zen-Fu Ueng and C. C. Yang ()

Journal of Economics, 2005, vol. 84, issue 1, 26 pages

Abstract: A crucial idea in Laffont and Tirole (1993) is the extraction of costly information rent through production distortion. In this paper we augment the Laffont-Tirole model with time delay, highlighting the possibility of further rent extraction through consumption distortion due to the delayed implementation of a public project. This consumption distortion through delay in essence relaxes the incentive constraint in the presence of asymmetric information. We show that a positive but finite delay can be optimal in regulation, and provide a condition differentiating welfare-improving delays from welfare-worsening ones. This condition generalizes the shutdown condition of an inefficient firm in the Laffont-Tirole model. Copyright Springer-Verlag Wien 2005

Keywords: time delay; rent extraction; regulation; D82; L51 (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:84:y:2005:i:1:p:1-26

DOI: 10.1007/s00712-004-0095-5

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