Regulatory risk under optimal incentive regulation

Arbeitspapier

The paper provides a tractable, analytical framework to study regulatory risk. Regulatory risk is captured by uncertainty about the policy variables in the regulator's objective function: weights attached to profits and costs of public funds. Results are as follows: 1) The regulator's reaction to regulatory risk depends on the curvature of aggregate demand. 2) It yields a positive information rent effect exactly when demand is convex. 3) Firms benefit from regulatory risk exactly when demand is convex. 4) Consumers' risk preferences tend to contradict the firm's. 5) Benevolent regulators always prefer regulatory risk and these preferences may contradict both the firm's and consumers'.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2638

Classification and Topics

• Classification: Wirtschaft ; Economics of Regulation ; Asymmetric and Private Information; Mechanism Design
• Subject: optimal incentive regulation ; regulatory risk ; benevolent regulators ; information rents ; Anreizregulierung ; Regulierung ; Wirtschaftspolitisches Ziel ; Risiko ; Informationswert ; Rententheorie ; Mikroökonomische Konsumfunktion ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Strausz, Roland
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/30478
• Last update: 10.03.2025, 11:43 AM CET