Quality of Government Regulated Goods

18 Pages Posted: 5 Sep 2010 Last revised: 24 Oct 2010

See all articles by Marian W. Moszoro

Marian W. Moszoro

Warsaw School of Economics (SGH); International Monetary Fund (IMF); George Mason University - Department of Economics; George Mason University - Interdisciplinary Center for Economic Science (ICES)

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Date Written: October 24, 2010

Abstract

Regulators face the difficult task of determining the sets of price and quality of government regulated goods. While the profit maximizing monopoly always produces less in quantity than under free competition, the level of quality produced by the monopoly is not unequivocal: it depends on its cost and demand functions. The social effect of quality change is not unequivocal, either, because it depends, apart from the cost function change, on the shift and tilt change of the demand curve. The problem lies in determining how the price elasticity of basic need goods responds to quality change and whether this change of quality is socially desirable. This paper analyzes quality as a decision variable in the government regulated goods sector. Because the quality of government regulated goods reminds an externality, in particular cases the optimal level of the quality of these goods can be determined. Paradoxically, rate-of-return regulation may even make it impossible to achieve Pareto efficient contracts for government regulated goods.

Keywords: Infrastructure, Regulation of Quality, Coase Theorem

JEL Classification: H54, L15, L51

Suggested Citation

Moszoro, Marian W., Quality of Government Regulated Goods (October 24, 2010). Available at SSRN: https://ssrn.com/abstract=1671658 or http://dx.doi.org/10.2139/ssrn.1671658

Marian W. Moszoro (Contact Author)

Warsaw School of Economics (SGH) ( email )

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PL-Warsaw, 02-554
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International Monetary Fund (IMF) ( email )

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George Mason University - Department of Economics ( email )

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HOME PAGE: http://economics.gmu.edu/people/mmoszoro

George Mason University - Interdisciplinary Center for Economic Science (ICES) ( email )

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