Financing infrastructure under budget constraints

Axel Gautier () and Manipushpak Mitra

No 2003037, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: In this paper we consider the problem of financing infrastructure when the regulator faces a budget constraint. The optimal budget-constrained mechanism satisfies four properties. The first property is bunching at the top, that is the more efficient firms produce the same quantity irrespective of their costs. The second property is separability of less efficient firms. The third property is that the mechanism is a third best one, that is, the optimal budget constrained output is strictly lower than the second best output for any given type. Finally, if the budget constraint is too strong, then we have full bunching.

Keywords: regulation; asymmetric information; budget constraint (search for similar items in EconPapers)
JEL-codes: D82 H42 L51 (search for similar items in EconPapers)
Date: 2003-05
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Working Paper: Financing Infrastructure under Budget Constraint (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2003037

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