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A Reexamination of Yardstick Competition

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  • Joel Sobel

Abstract

This paper shows that yardstick competition does not assist a regulator when lump‐sum transfers are not costly and the regulator does not care about the distribution of income. Yardstick competition may discourage investment that would make efficient operation possible. The paper characterizes optimal regulatory schemes in a simple model and demonstrates that it may be optimal to limit the amount of information available to the regulator.

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  • Joel Sobel, 1999. "A Reexamination of Yardstick Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(1), pages 33-60, March.
    • Handle: RePEc:bla:jemstr:v:8:y:1999:i:1:p:33-60
    DOI: 10.1111/j.1430-9134.1999.00033.x
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    1. Kridel, Donald J & Sappington, David E M & Weisman, Dennis L, 1996. "The Effects of Incentive Regulation in the Telecommunications Industry: A Survey," Journal of Regulatory Economics, Springer, vol. 9(3), pages 269-306, May.
    2. Jean-Jacques Laffont & David Martimort, 2000. "Mechanism Design with Collusion and Correlation," Econometrica, Econometric Society, vol. 68(2), pages 309-342, March.
    3. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
    4. Dalen, Dag Morten, 1997. "Regulation of Quality and the Ratchet Effect: Does Unverifiability Hurt the Regulator?," Journal of Regulatory Economics, Springer, vol. 11(2), pages 139-155, March.
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    6. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-361, March.
    7. Sappington, David E. M., 1986. "Commitment to regulatory bureaucracy," Information Economics and Policy, Elsevier, vol. 2(4), pages 243-258, December.
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    Citations

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    Cited by:

    1. Potters, Jan & Rockenbach, Bettina & Sadrieh, Abdolkarim & van Damme, Eric, 2004. "Collusion under yardstick competition: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 22(7), pages 1017-1038, September.
    2. Faure-Grimaud, A. & Reiche, S., 2006. "Dynamic yardstick mechanisms," Games and Economic Behavior, Elsevier, vol. 54(2), pages 316-335, February.
    3. Stronzik, Marcus, 2013. "Investitions- und Innovationsanreize: Ein Vergleich zwischen Revenue Cap und Yardstick Competition," WIK Discussion Papers 379, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    4. Wang, Ruixin, 2015. "Essays on development economics and public economics," Other publications TiSEM e1779514-5b71-4726-925b-2, Tilburg University, School of Economics and Management.
    5. Georg Meran & Christian Hirschhausen, 2009. "A modified yardstick competition mechanism," Journal of Regulatory Economics, Springer, vol. 35(3), pages 223-245, June.
    6. Tangerås, Thomas P., 2002. "Regulation of Cost and Quality under Yardstick Competition," Working Paper Series 573, Research Institute of Industrial Economics.
    7. Ingo Vogelsang, 2012. "Incentive Regulation, Investments and Technological Change," Chapters, in: Gerald R. Faulhaber & Gary Madden & Jeffrey Petchey (ed.), Regulation and the Performance of Communication and Information Networks, chapter 4, Edward Elgar Publishing.
    8. Tangeras, Thomas P., 2002. "Collusion-proof yardstick competition," Journal of Public Economics, Elsevier, vol. 83(2), pages 231-254, February.
    9. Marques, Rui Cunha, 2006. "A yardstick competition model for Portuguese water and sewerage services regulation," Utilities Policy, Elsevier, vol. 14(3), pages 175-184, September.
    10. Faure-Grimaud, Antoine & Reiche, Sönje Kerrin, 2003. "Dynamic Yardstick Regulation," CEPR Discussion Papers 4035, C.E.P.R. Discussion Papers.
    11. Nicos Savva & Tolga Tezcan & Özlem Yıldız, 2019. "Can Yardstick Competition Reduce Waiting Times?," Management Science, INFORMS, vol. 65(7), pages 3196-3215, July.
    12. Antoine Faure-Grimaud & Soenje Reiche, 2003. "Dynamic Yardstick Regulation," STICERD - Theoretical Economics Paper Series 459, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    13. Bhaskar, V & Gupta, Bishnupriya & Khan, Mushtaq, 2002. "Partial Privatization and Yardstick Competition: Evidence from Employment Dynamics in Bangladesh," Economics Discussion Papers 8847, University of Essex, Department of Economics.
    14. Haldun Evrenk & E. Zenginobuz, 2010. "Regulation through a revenue contest," Journal of Economics, Springer, vol. 99(3), pages 211-237, April.
    15. Michele Bisceglia & Roberto Cellini & Luca Grilli, 2022. "On the dynamic optimality of yardstick regulation," Annals of Operations Research, Springer, vol. 315(1), pages 73-92, August.
    16. Harada, Shumpei & 原田, 峻平 & Yamauchi, Hirotaka & 山内, 弘隆, 2014. "Yardstick Competition And Franchise Bidding: A Comparative Analysis Based On Asymmetric Information," Hitotsubashi Journal of commerce and management, Hitotsubashi University, vol. 48(1), pages 31-42, October.
    17. Nicolò Avogadro & Sebastian Birolini & Mattia Cattaneo & Paolo Malighetti & Chiara Morlotti & Renato Redondi, 2020. "Yardstick Regulation in a Competitive Context? The Case of the Italian Airports," Competition and Regulation in Network Industries, , vol. 21(3), pages 244-274, September.
    18. Fumitoshi Mizutani & Hideo Kozumi & Noriaki Matsushima, 2009. "Does yardstick regulation really work? Empirical evidence from Japan’s rail industry," Journal of Regulatory Economics, Springer, vol. 36(3), pages 308-323, December.
    19. Harada, Shumpei & Yamauchi, Hirotaka, 2018. "A theoretical study on yardstick competition and franchise bidding based on a dynamic model," Transport Policy, Elsevier, vol. 62(C), pages 58-62.
    20. TEUSCH, Jonas, 2016. "Merger Incentives Under Yardstick Competition : a Theoretical Model," LIDAM Discussion Papers CORE 2016037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    21. Faure-Grimaud, Antoine & Reiche, Sonje, 2003. "Dynamic yardstick regulation," LSE Research Online Documents on Economics 19319, London School of Economics and Political Science, LSE Library.
    22. J.A. den Hertog, 2010. "Review of economic theories of regulation," Working Papers 10-18, Utrecht School of Economics.
    23. Facanha, Luis Otavio & Resende, Marcelo, 2004. "Price cap regulation, incentives and quality:: The case of Brazilian telecommunications," International Journal of Production Economics, Elsevier, vol. 92(2), pages 133-144, November.

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