Author： Broer Peter Zwart Gijsbert
Publisher： Springer Publishing Company
ISSN： 0922-680X
Source： Journal of Regulatory Economics, Vol.44, Iss.2, 2013-10, pp. : 177-196
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Abstract
We study optimal timing of regulated investment in a real options setting, in which the regulated monopolist has private information on investment costs. In solving the ensuing agency problem, the regulator trades off investment timing inefficiency against the dead-weight loss arising from high price caps. We show that optimal regulation is implemented by a price cap that decreases as a function of the monopolist’s chosen investment time.
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