Optimal regulation of lumpy investments

Peter Broer and Gijsbert Zwart

Journal of Regulatory Economics, 2013, vol. 44, issue 2, 177-196

Abstract: We study optimal timing of regulated investment in a real options setting, in which the regulated monopolist has private information on investment costs. In solving the ensuing agency problem, the regulator trades off investment timing inefficiency against the dead-weight loss arising from high price caps. We show that optimal regulation is implemented by a price cap that decreases as a function of the monopolist’s chosen investment time. Copyright Springer Science+Business Media New York 2013

Keywords: Real options; Asymmetric information; Agency; Optimal regulation; Budget constraint; D81; D82; L51 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (24)

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Working Paper: Optimal regulation of lumpy investments (2012)
Working Paper: Optimal Regulation of Lumpy Investments (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:regeco:v:44:y:2013:i:2:p:177-196

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DOI: 10.1007/s11149-013-9214-y

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