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Title:A Modified Yardstick Competition Mechanism PDF Logo
Authors:Meran, Georg
von Hirschhausen, Christian R.
Issue Date:2006
Series/Report no.:DIW-Diskussionspapiere 559
Abstract:This paper analyzes a modified yardstick competition mechanism (MYC), where the yardstick employed consists of a tariff basket and total costs. This mechanism has a significant information advantage: the regulator ?only? needs to observe total costs and output of all firms. The modified yardstick competition mechanism can ensure a socially optimal outcome when allowing for spatial and second degree price discrimination, without increasing the informational requirements. We also introduce regulatory lags in the model. A systematic comparison between the results of traditional yardstick regulation and modified yardstick regulation is carried out. Finally, we discuss the applicability of the mechanism.
Subjects:regulation
yardstick competition
mechanism design
information asymmetry
JEL:L11
L51
D40
Document Type:Working Paper
Appears in Collections:DIW-Diskussionspapiere
Publikationen von Forscherinnen und Forschern des DIW

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