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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.
yardstick competition
mechanism design
information asymmetry
Document Type:Working Paper
Appears in Collections:DIW-Diskussionspapiere
Publikationen von Forscherinnen und Forschern des DIW

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