Resource title

Regulatory risk under optimal incentive regulation

Resource image

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Resource description

The paper provides a tractable, analytical framework to study regulatory risk under optimal incentive regulation. Regulatory risk is captured by uncertainty about the policy variables in the regulator's objective function: weights attached to profits and costs of public funds. Results are as follows: 1) The regulator's reaction to regulatory risk depends on the curvature of the aggregate demand function. 2) It yields a positive information rent effect exactly when demand is convex. 3) Firms benefit from regulatory risk exactly when demand is convex. 4) Consumers' risk preferences tend to contradict the firms. 5) Benevolent regulators always prefer regulatory risk and these preferences may contradict both the firms and consumers' preferences.

Resource author

Roland Strausz

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25322

Resource license

Adapt according to the presented license agreement and reference the original author.