Strategic Firm Behavior under a Dynamic Regulatory Adjustment Process

David Sappington

Bell Journal of Economics, 1980, vol. 11, issue 1, 360-372

Abstract: The regulatory mechanism proposed by Vogelsang and Finsinger (V-F) will induce the regulated firm to adopt behavior other than myopic profit maximization. Pure waste, inefficient factor utilization, excessive research and development, and overinvestment in demand-increasing expenditures may be employed by the firm to increase long-run profits. The particular type of strategic behavior adopted, and the extent to which it is pursued, will depend upon the firm's allowed rate of return on capital, its discount rate, and the information it receives regarding the regulatory regime. Under reasonable conditions, the strategic behavior induced by V-F regulation will cause a significant reduction in consumers' surplus plus producer's profit below the level achieved in the absence of any regulation.

Date: 1980
References: Add references at CitEc
Citations: View citations in EconPapers (53)

Downloads: (external link)
http://links.jstor.org/sici?sici=0361-915X%2819802 ... O%3B2-F&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rje:bellje:v:11:y:1980:i:spring:p:360-372

Ordering information: This journal article can be ordered from
https://editorialexp ... i-bin/rje_online.cgi

Access Statistics for this article

More articles in Bell Journal of Economics from The RAND Corporation
Bibliographic data for series maintained by ().