Rent Extraction and Incentives for Efficiency in Recent Regulatory Proposals
Marc Ivaldi () and
Journal of Regulatory Economics, 1994, vol. 6, issue 2, 76 pages
Building on a simple model proposed by Schmalensee (1989), this paper uses simulation techniques to analyze and compare various regulatory schemes including Schmalensee's family of (linear) "good" regulatory regimes, a price-cap regime allowing for downward price flexibility, and a regime that combines price-cap and profit sharing. The quantitative analysis pays particular attention to measuring the trade-off between rent extraction and incentives for efficiency. The main findings of this study can be summarized as follows: First, it appears that pure price-cap regulation leaves substantial rent to the firm relative to the other regimes. Second, introducing room for downward price flexibility improves efficiency of price-cap over Schmalensee's linear regulatory regimes. Finally, by correcting in part for the distributional distortion of price-cap, the profit-sharing mechanism often yields levels of welfare comparable to optimal regulation levels. Copyright 1994 by Kluwer Academic Publishers
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Working Paper: Rent Extraction and Incentives for Efficiency in Recent Regulatory Proposals (1992)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:regeco:v:6:y:1994:i:2:p:151-76
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