Price-Cap Regulation and Uncertain Technical Change
Applied Economics Letters, vol. 7, no.11, pp. 739-742
Posted: 6 Apr 2016
Date Written: 2000
The paper studies the effect of price-cap regulation on the research behaviour of a regulated firm and an external developer who are pursuing an uncertain innovation. Contributions of this work include incorporating innovation uncertainty and imperfect appropriability of innovation rewards into the analysis. In contrast to existing literature, it is found that a tighter price-cap diminishes the incentives for cost-reduction.
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