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Title:Regulatory risk under optimal incentive regulation PDF Logo
Authors:Strausz, Roland
Issue Date:2009
Series/Report no.:CESifo working paper 2638
Abstract:The paper provides a tractable, analytical framework to study regulatory risk. 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 aggregate demand. 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 firm's. 5) Benevolent regulators always prefer regulatory risk and these preferences may contradict both the firm's and consumers'.
Subjects:optimal incentive regulation
regulatory risk
benevolent regulators
information rents
JEL:L51
D82
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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