Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/18452
Authors: 
Meran, Georg
von Hirschhausen, Christian R.
Year of Publication: 
2006
Series/Report no.: 
DIW Discussion Papers 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.
Subjects: 
regulation
yardstick competition
mechanism design
information asymmetry
JEL: 
L11
L51
D40
Document Type: 
Working Paper

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