Using Forward Contracts to Reduce Regulatory Capture

Arbeitspapier

A fully unbundled, regulated network firm of unknown efficiency level can untertake 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 force the firm to sell the following forward contracts: the firm pays the downstream price to the owners of a contract, but recieves the expected value of the contracts when selling them to a competivitve 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 propability of high downstream prices, or the type of the firm), optimal regulation uses forward contracts only.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB/TR 15 Discussion Paper ; No. 320

Classification and Topics

• Classification: Wirtschaft ; Vertical Restraints; Resale Price Maintenance; Quantity Discounts ; Economics of Regulation ; Regulated Industries and Administrative Law ; Electric Utilities
• Subject: incentive regulation ; regulatory capture ; virtual power plants ; Anreizregulierung ; Derivat ; Elektrizitätswirtschaft ; Lieferantenmanagement ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Höffler, Felix ; Kranz, Sebastian
• Event: Veröffentlichung
• (who): Sonderforschungsbereich/Transregio 15 - Governance and the Efficiency of Economic Systems (GESY)
• (where): München
• (when): 2010

Further information

• DOI: doi:10.5282/ubm/epub.13234
• Handle: http://hdl.handle.net/10419/93929
• URN: urn:nbn:de:bvb:19-epub-13234-9