Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79619
Authors: 
Fiocco, Raffaele
Strausz, Roland
Year of Publication: 
2012
Series/Report no.: 
SFB 649 Discussion Paper 2012-055
Abstract: 
Strategic delegation to an independent regulator with a pure consumer standard improves dynamic regulation by mitigating ratchet effects associated with short term contracting. A consumer standard alleviates the regulator's myopic temptation to raise output after learning the firm is inefficient. Anticipating this tougher regulatory behavior, efficient firms find cost exaggeration less attractive. This reduces the need for long term rents and mitigates ratchet effects. The regulator's welfare standard biased towards consumers comes, however, at the cost of some allocative distortion from the genuine social welfare perspective. Hence, a trade-off results which favors strategic delegation when efficient firms are relatively likely.
Subjects: 
Dynamic regulation
strategic delegation
consumer standard
ratchet effect
limited commitment
JEL: 
D82
L51
Document Type: 
Working Paper

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