Dynamic Quotas with Learning
17 Pages Posted: 6 Feb 2001
Date Written: November 20, 2000
We study the optimal quota sequence, in a stationary environment, where a regulator and a non-strategic firm have asymmetric information. The regulator is able to learn about the unknown cost parameter by using a quota that is slack with positive probability. It is never optimal for the regulator to learn gradually. In the first period, he either ignores the possibility of learning, or he tries to improve his information. Regardless of the outcome in the first period, he never experiments in subsequent periods.
Keywords: quotas, asymmetric information, searching
JEL Classification: D83, L50
Suggested Citation: Suggested Citation