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Title:Regulatory risk under optimal incentive regulation PDF Logo
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
information rents
Document Type:Working Paper
Appears in Collections:SFB 649 Discussion Papers, HU Berlin

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