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|Title:||A Modified Yardstick Competition Mechanism |
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.|
|Document Type:||Working Paper|
|Appears in Collections:||DIW-Diskussionspapiere|
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