This paper examines the possibility that price regulation increases a monopolist’s costefficiency. When the firm’s choice of cost-reducing effort depends on the output supplied, a binding price-cap, by compelling the monopolist to produce more, results in lower costs. On the basis of a two-period asymmetric information model, the paper demonstrates that price regulation increases efficiency when the elasticity of demand is sufficiently low, even assuming very conservative preferences of the regulator and asymmetric information. Moreover, contrary to previous findings and conventional wisdom, we find that a periodical rate base review may increase productive efficiency through the positive effect on future cost-reducing effort, counterbalancing its well known adverse effect on the current level of effort.

Can Price Regulation Increase Cost-Efficiency? / Giuseppe, Coco; DE VINCENTI, Claudio. - In: RESEARCH IN ECONOMICS. - ISSN 1090-9443. - 58:4(2004), pp. 303-317. [10.1016/j.rie.2004.07.002]

Can Price Regulation Increase Cost-Efficiency?

DE VINCENTI, Claudio
2004

Abstract

This paper examines the possibility that price regulation increases a monopolist’s costefficiency. When the firm’s choice of cost-reducing effort depends on the output supplied, a binding price-cap, by compelling the monopolist to produce more, results in lower costs. On the basis of a two-period asymmetric information model, the paper demonstrates that price regulation increases efficiency when the elasticity of demand is sufficiently low, even assuming very conservative preferences of the regulator and asymmetric information. Moreover, contrary to previous findings and conventional wisdom, we find that a periodical rate base review may increase productive efficiency through the positive effect on future cost-reducing effort, counterbalancing its well known adverse effect on the current level of effort.
2004
01 Pubblicazione su rivista::01a Articolo in rivista
Can Price Regulation Increase Cost-Efficiency? / Giuseppe, Coco; DE VINCENTI, Claudio. - In: RESEARCH IN ECONOMICS. - ISSN 1090-9443. - 58:4(2004), pp. 303-317. [10.1016/j.rie.2004.07.002]
File allegati a questo prodotto
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/14048
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 5
  • ???jsp.display-item.citation.isi??? ND
social impact