Regulatory Risk Under Optimal Monopoly Regulation

I develop a tractable framework to study regulatory risk under optimal monopoly regulation. It captures increasing regulatory risk as mean-preserving spreads of two regulatory variables: weights attached to profits and costs of public funds. The regulator's reaction to regulatory risk depends o...

Full description

Saved in:
Bibliographic Details
Published in:The Economic journal (London) 2011-06, Vol.121 (553), p.740-762
Main Author: Strausz, Roland
Format: Article
Language:English
Subjects:
Business risks
Commercial regulation
Consumer attitudes
Consumer economics
Curvature
Demand curves
Economic regulation
Economics
Industrial regulation
Marginal costs
Monopolies
Monopolistic competition
Monopoly power
Preferences
Price regulation
Regulation
Regulatory policy
Regulatory theory
Risk assessment
Risk management
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:I develop a tractable framework to study regulatory risk under optimal monopoly regulation. It captures increasing regulatory risk as mean-preserving spreads of two regulatory variables: weights attached to profits and costs of public funds. The regulator's reaction to regulatory risk depends on the curvature of demand. For convex (concave) demand, it yields a positive (negative) information rent effect that benefits (hurts) the firm. Consumers dislike a positive information rent effect but their risk preferences also depend on their tendency to dislike fluctuations in consumption. Risk preference of benevolent regulators may contradict both those of the firm and consumers.
ISSN:0013-0133
1468-0297
DOI:10.1111/j.1468-0297.2011.02441.x