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Sonderforschungsbereich 649: Ökonomisches Risiko, Humboldt-Universität Berlin >
SFB 649 Discussion Papers, HU Berlin >
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http://hdl.handle.net/10419/25322
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| Title: | | Regulatory risk under optimal incentive regulation  |
| Authors: | | Strausz, Roland |
| Issue Date: | | 2009 |
| Series/Report no.: | | SFB 649 discussion paper 2009,006 |
| Abstract: | | The paper provides a tractable, analytical framework to study regulatory risk under optimal incentive regulation. Regulatory risk is captured by uncertainty about the policy variables in the regulator's objective function: weights attached to profits and costs of public funds. Results are as follows: 1) The regulator's reaction to regulatory risk depends on the curvature of the aggregate demand function. 2) It yields a positive information rent effect exactly when demand is convex. 3) Firms benefit from regulatory risk exactly when demand is convex. 4) Consumers' risk preferences tend to contradict the firms. 5) Benevolent regulators always prefer regulatory risk and these preferences may contradict both the firms and consumers' preferences. |
| Subjects: | | Optimal incentive regulation regulatory risk procurement information rents |
| JEL: | | L51 D82 |
| Document Type: | | Working Paper |
| Appears in Collections: | | SFB 649 Discussion Papers, HU Berlin
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