Learning by Doing and Dynamic Regulation

Posted: 11 Feb 2002

See all articles by Tracy R. Lewis

Tracy R. Lewis

Duke University, Fuqua School of Business-Economics Group; National Bureau of Economic Research (NBER); Duke University - Department of Economics; Duke Innovation & Entrepreneurship Initiative

Huseyin Yildirim

Duke University - Department of Economics

Abstract

From experience, regulated monopolists learn to employ cost-reducing innovations. We characterize the optimal regulation of an innovating monopolist with unknown costs. Regulatory policy is designed to minimize current costs of service while encouraging development of cost-saving innovations. We find that under optimal regulation, (i) innovation is encouraged by light-handed regulation allowing the monopolist to earn greater information rents while providing greater service, (ii) innovation occurs in the absence of long-term agreements when private information is recurring, and (iii) innovation is more rapid in a durable franchise, and the regulator prefers durable franchises for exploiting learning economies.

Suggested Citation

Lewis, Tracey R. and Yildirim, Huseyin, Learning by Doing and Dynamic Regulation. RAND Journal of Economics, Vol. 33, No. 1, Spring 2002. Available at SSRN: https://ssrn.com/abstract=294543

Tracey R. Lewis (Contact Author)

Duke University, Fuqua School of Business-Economics Group ( email )

Box 90097
Durham, NC 27708-0097
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Huseyin Yildirim

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1805 (Phone)
919-684-8974 (Fax)

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