Using forward contracts to reduce regulatory capture

Arbeitspapier

A fully unbundled, regulated network firm of unknown efficiency level can undertake unobservable effort to increase the likelihood of low downstream prices, e.g., by facilitating downstream competition. To incentivize such effort, the regulator can use an incentive scheme paying transfers to the firm contingent on realized downstream prices. Alternatively, the regulator can propose to the firm to sell the following forward contracts: the firm pays the downstream price to the owners of a contract, but receives the expected value of the contracts when selling them to a competitive financial market. We compare the two regulatory tools with respect to regulatory capture: if the regulator can be bribed to suppress information on the underlying state of the world (the basic probability of high downstream prices, or the type of the firm), optimal regulation uses forward contracts only.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Preprints of the Max Planck Institute for Research on Collective Goods ; No. 2011,9

Classification and Topics

• Classification: Wirtschaft ; Regulated Industries and Administrative Law ; Electric Utilities ; Legal Monopolies and Regulation or Deregulation ; Economics of Regulation
• Subject: incentive regulation ; regulatory capture ; virtual power plants ; Anreizregulierung ; Termingeschäft ; Elektrizitätswirtschaft ; Lieferanten-Kunden-Beziehung ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Höffler, Felix ; Kranz, Sebastian
• Event: Veröffentlichung
• (who): Max Planck Institute for Research on Collective Goods
• (where): Bonn
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/57502
• Last update: 10.03.2025, 11:43 AM CET