A Model of Arbitration in Regulation

Juan-Pablo Montero

No 267, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: I study a regulatory process in which both the regulator and the regulated firm propose prices that in case of disagreement are settled through final-offer arbitration – a practice currently used in Chile for setting prices in the water sector. Rather than submitting a single offer, each party simultaneously submit offers for each of the cost units in which the firm is divided. This multiplicity is believed to be responsible for the great divergence between parties' offers observed in practice. I show, however, that reducing the number of offers makes little difference unless parties are required to submit a single offer.

Keywords: Final-offer arbitration; price regulation; Nash equilibrium (search for similar items in EconPapers)
JEL-codes: L50 L90 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (1)

Published as "A Model of Final-Offer Arbitration in Regulation", Journal of Regulatory Economics Nº 28, pp. 23-46, 2005.

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Working Paper: A model of arbitration in regulation (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ioe:doctra:267

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