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What determines the power of a regulatory regime?

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  • Weisman, Dennis L.

Abstract

This paper derives a metric for the power of a regulatory regime (PRR) that is a function of the regulated firm’s share of profits, the ratchet effect and the Arrow effect. The power metric is non-monotonic in the earnings-sharing parameter when the regulator can affect prices ex post. An important finding, and a notable contrast with the literature, is that increased earnings sharing can increase both the regulated firm’s profits and the PRR.

Suggested Citation

  • Weisman, Dennis L., 2021. "What determines the power of a regulatory regime?," Economics Letters, Elsevier, vol. 199(C).
    • Handle: RePEc:eee:ecolet:v:199:y:2021:i:c:s0165176521000033
    DOI: 10.1016/j.econlet.2021.109726
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    References listed on IDEAS

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    1. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    2. Cabral, Luis M B & Riordan, Michael H, 1989. "Incentives for Cost Reduction under Price Cap Regulation," Journal of Regulatory Economics, Springer, vol. 1(2), pages 93-102, June.
    3. Dennis L. Weisman, 2019. "The power of regulatory regimes reexamined," Journal of Regulatory Economics, Springer, vol. 56(2), pages 125-148, December.
    4. Weisman Dennis L., 2016. "What Do Regulators Value?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(4), pages 1-10, October.
    5. Weisman Dennis L., 2016. "What Do Regulators Value?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(4), pages 1-10, October.
    6. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    7. Kahn, Alfred E. & Tardiff, Timothy J. & Weisman, Dennis L., 1999. "The Telecommunications Act at three years: an economic evaluation of its implementation by the Federal Communications Commission," Information Economics and Policy, Elsevier, vol. 11(4), pages 319-365, December.
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    Cited by:

    1. Pu‐yan Nie & Hong‐xing Wen & Chan Wang, 2023. "Price cap regulation under duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1376-1382, April.

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    More about this item

    Keywords

    Power of regulatory regimes; Price caps; Efficiency; Competitive entry;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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