Optimal regulation of network expansion

Publisher： John Wiley & Sons Inc

E-ISSN： 1756-2171|49|1|23-42

ISSN： 0741-6261

Source： THE RAND JOURNAL OF ECONOMICS, Vol.49, Iss.1, 2018-03, pp. : 23-42

Disclaimer: Any content in publications that violate the sovereignty, the constitution or regulations of the PRC is not accepted or approved by CNPIEC.

Previous Menu Next

Abstract

AbstractWe model the regulation of irreversible capacity expansion by a firm with private information about capacity costs, where investments are financed from the firm's cash flows and demand is stochastic. The optimal mechanism is implemented by a revenue tax that increases with the price cap. If the asymmetric information has large support, then the optimal mechanism consists of a laissez‐faire regime for low‐cost firms. That is, the firm's price cap corresponds to that of an unregulated monopolist, and it is not taxed. This “maximal distortion at the top” is necessary to provide information rents, as direct subsidies are not feasible.

Related content

Optimal regulation of lumpy investments

By Broer Peter   Zwart Gijsbert  

Journal of Regulatory Economics, Vol. 44, Iss. 2, 2013-10 ,pp. : 177-196 (20)

Springer Publishing Company

Access to resources Recommend Favorite

Optimal expansion of the power transmission grid: why not?

By Léautier Thomas-Olivier   Thelen Véronique  

Journal of Regulatory Economics, Vol. 36, Iss. 2, 2009-10 ,pp. : 127-153 (27)

Springer Publishing Company

Access to resources Recommend Favorite

Optimal access regulation with downstream competition

By Kao Tina   Menezes Flavio   Quiggin John  

Journal of Regulatory Economics, Vol. 45, Iss. 1, 2014-02 ,pp. : 75-93 (19)

Springer Publishing Company

Access to resources Recommend Favorite

Optimal Regulation of Private Production Contracts with Environmental Externalities

By Bontems Philippe   Dubois Pierre   Vukina Tomislav  

Journal of Regulatory Economics, Vol. 26, Iss. 3, 2004-11 ,pp. : 287-301 (15)

Springer Publishing Company

Access to resources Recommend Favorite

Is the Current Regulation of the VIII Division European Anchovy Optimal?

By del Valle I.  

Environmental and Resource Economics, Vol. 19, Iss. 1, 2001-05 ,pp. : 53-72 (20)

Springer Publishing Company

Access to resources Recommend Favorite