Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96831
Authors: 
Fiocco, Raffaele
Strausz, Roland
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4758
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 pure 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 it less attractive to exaggerate costs. This reduces the need for long term rents and mitigates ratchet effects. A welfare standard biased towards consumers entails, however, allocative costs arising from partial separation of the firms’ cost types. A trade-off results which favors strategic delegation when efficient firms are relatively likely.
Subjects: 
dynamic regulation
strategic delegation
consumer standard
ratchet effects
limited commitment
JEL: 
D82
L51
Document Type: 
Working Paper

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