Regulation with Rationed Information or Deegation: Solutions to the Under-Investment Problem

Regulation Initiative Working Paper Series No. 43

33 Pages Posted: 10 Nov 2003

See all articles by Francesc Trillas

Francesc Trillas

Autonomous University of Barcelona - Department of Economics; University of Navarra - IESE Business School

Paul Levine

School of Economics, University of Surrey

Date Written: February 2001

Abstract

A new perspevtive is provided on the under-investment problem in the regulation of a firm with market power. We compare a political equilibrium based on a voting model with lobbying with a delegation equilbrium, where a government can delegate to a particular 'type' of pro- or anti-industry regualtor. Our analysis suggests two possible ways in which we may observe effective, although second-best, price regulation that both encourages socially optimal investment and ensures consumers benefit: First, voters recieve just the amount of information that maximises social welfare and second, the decisions on price are delegated to a sufficiently, but not excessively, pro-industry regulator.

Keywords: under-investment, political equilibrium, delegation

JEL Classification: L51

Suggested Citation

Trillas Jané, Francesc and Levine, Paul L., Regulation with Rationed Information or Deegation: Solutions to the Under-Investment Problem (February 2001). Regulation Initiative Working Paper Series No. 43. Available at SSRN: https://ssrn.com/abstract=319640 or http://dx.doi.org/10.2139/ssrn.319640

Francesc Trillas Jané (Contact Author)

Autonomous University of Barcelona - Department of Economics ( email )

Avda. Diagonal 690
Barcelona, 08034
Spain

University of Navarra - IESE Business School

Avenida Pearson 21
Barcelona, 08034
Spain

Paul L. Levine

School of Economics, University of Surrey ( email )

Guildford
Surrey GU2 7XH
United Kingdom
+44 1483 259 380 Ext. 2773 (Phone)
+44 1483 259 548 (Fax)

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