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Price-cap regulation and uncertain technical change

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  • Rajeev Goel

Abstract

The paper studies the effect of price-cap regulation on the research behaviour of a regulated firm and an external developer who are pursuing an uncertain innovation. Contributions of this work include incorporating innovation uncertainty and imperfect appropriability of innovation rewards into the analysis. In contrast to existing literature, it is found that a tighter price-cap diminishes the incentives for cost-reduction.

Suggested Citation

  • Rajeev Goel, 2000. "Price-cap regulation and uncertain technical change," Applied Economics Letters, Taylor & Francis Journals, vol. 7(11), pages 739-742.
    • Handle: RePEc:taf:apeclt:v:7:y:2000:i:11:p:739-742
    DOI: 10.1080/135048500421386
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    References listed on IDEAS

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    1. Hartwick, John M., 1991. "Patent races optimal with respect to entry," International Journal of Industrial Organization, Elsevier, vol. 9(2), pages 197-207, June.
    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. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(3), pages 395-410.
    4. Heyes, Anthony G. & Liston-Heyes, Catherine, 1998. "Price-cap regulation and technical change," Journal of Public Economics, Elsevier, vol. 68(1), pages 137-151, April.
    5. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790, April.
    6. Liston, Catherine, 1993. "Price-Cap versus Rate-of-Return Regulation," Journal of Regulatory Economics, Springer, vol. 5(1), pages 25-48, March.
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