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Regulation Games

Author

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  • Gilbert, Richard J.
  • Newbery, David M.

Abstract

We examine regulation as a repeated game between a regulator and a utility facing a Markovian sequence of demands. Sunk capital would be expropriated by a regulator concerned only with the short-run interests of consumers. There exist rate of return regulatory policies supporting efficient investment paths with zero expected profits as subgame perfect Nash equilibria, but these policies must under-reward capital in some states of the world. Carefully designed nonlinear price regulation can improve on these equilibrium outcomes, although at higher consumer costs, and only if state-contingent transfers are feasible.
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Suggested Citation

  • Gilbert, Richard J. & Newbery, David M., 1988. "Regulation Games," Department of Economics, Working Paper Series qt50s6h8c6, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt50s6h8c6
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    Cited by:

    1. Jean-Jacques Laffont, 2004. "Management of Public Utilities in China," Annals of Economics and Finance, Society for AEF, vol. 5(2), pages 185-210, November.
    2. repec:cam:camdae:1324 is not listed on IDEAS
    3. Giuliana Palumbo, 2000. "Decision Rules and Optimal Delegation of Information Acquisition," CSEF Working Papers 42, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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