Incentive Regulation and the Regulation of Incentives
The class is theory of price regulation assumed that the regulator knows the fIrm's costs, the key piece of information that enables regulators to pressure fmns to choose appropriate behaviors. The "regulatory problem" was reduced to a mere pricing problem: the regulator's goal was to align price with marginal cost, subject to the constraint that revenues must cover costs. Elegant and important insights ensued. The most important was that regulation was inevitably a struggle to achieve second-best outcomes. (Ramsey pricing was a splendid example. ) Reality proved harsh to regulatory theory. The fmn's costs are by no means known to the regulator. At best, the regulator may know how much is currently spent to provide services, but hardly what costs would be if the fmn vigorously pursued effIciency. Even if the current cost curve were known to the regulator, technologies change so swiftly that today's costs are a very poor indicator of tomorrow's, and those are the costs that will determine the fIrm's future decisions. With the burgeoning attention to information considerations and game theory in economics, the regulator's problem of eliciting host information about cost has received considerable attention. In most cases, however, it has been in context that are both static and stylized; such analyses rarely capture many of the essential elements of real world regulatory issues. This volume represents a fresh approach. It reflects Glenn Blackmon's twin strengths, a keen analytic mind and important experience in the regulatory arena.
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asymmetric information benefits from abuse Blackmon capital chapter commission company's compensation consumer benefits consumer surplus cross subsidy deadweight loss decisions earnings economic employee engage in abuse excess exogenous cost changes expected value expenditures on abuse expense savings firm's costs firm's expenditures firm's incentive firm's payoff firm's share fixed charge give the firm Illinois Bell incentive effects incentive mechanism incentive payment incentive regulation plan incentive schedule induce the firm inefficiency information asymmetry ISS-M level of abuse marginal cost million monitoring monopoly moral hazard NYNEX operate participation constraint period potential price discrimination pricing efficiency principal-agent production efficiency profits rate of return rate reviews reduce abuse regulated firm regulatory lag regulatory problem result revenues Sappington and Sibley set price share of savings sharing ratio subsidy supply curve traditional regulation U S West U S West incentive U S West plan unregulated utility services West incentive plan Wisconsin Bell