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Regulation Games

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  • Richard J. Gilbert and David M. Newbery.

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

  • Richard J. Gilbert and David M. Newbery., 1988. "Regulation Games," Economics Working Papers 8879, University of California at Berkeley.
    • Handle: RePEc:ucb:calbwp:8879
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    Cited by:

    1. Flacher, David & Jennequin, Hugues & Lorenzi, Jean-Hervé, 2006. "Innovation, Investment and Regulation: What are the Options for Regulation in the Near Future?," MPRA Paper 3573, University Library of Munich, Germany.
    2. Toru Hattori & Jamasb, T. & Pollitt, M.G., 2002. "Relative Performance of UK and Japanese Electricity Distribution Systems 1985-1998: Lessons for Incentive Regulation," Cambridge Working Papers in Economics 0212, Faculty of Economics, University of Cambridge.
    3. Severin Boreinstein & Andrea Shepard, 1996. "Dynamic Pricing in Retail Gasoline Markets," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 429-451, Autumn.
    4. Yin-Fang Zhang & David Parker & Colin Kirkpatrick, 2008. "Electricity sector reform in developing countries: an econometric assessment of the effects of privatization, competition and regulation," Journal of Regulatory Economics, Springer, vol. 33(2), pages 159-178, April.
    5. Eduardo Saavedra, "undated". "Opportunistic Behavior and Legal Disputes in the Chilean Electricity Sector," ILADES-UAH Working Papers inv130, Universidad Alberto Hurtado/School of Economics and Business.
    6. 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.
    7. 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.
    8. J.A. den Hertog, 2010. "Review of economic theories of regulation," Working Papers 10-18, Utrecht School of Economics.
    9. repec:cam:camdae:1324 is not listed on IDEAS

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