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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/30478
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| Title: | | Regulatory risk under optimal incentive regulation  |
| 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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