Quality Regulation in the Monopoly Case: The Impact of Information

Arantza Beitia ()

No 1994012, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In this paper we study the problem of how to regulate a monopolist whose costs are unknown to the regulator. The total cost incurred by the firm depends on the quantity produced, on the level of quality, which is observable and verifiable, as well as on some privately known technological parameter. In the optimal regulatory policy, quantity, quality and transfers are designed as functions of the firm's report about his technological parameter so that the expected social welfare is maximized subject to the individual rationality and the incentive compatibility constraints. The analysis deals in detail with the factors that determine the direction of quantity-quality deviations relative to the complete information solution.

Date: 1994-02-01
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