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Independent Utility Regulators: Lessons from Monetary Policy

Subject

Economics

Publication Year

2003

Abstract

This paper explores the similarity and difference between the credibility problem of monetary policy and the under investment problem of price regulation. In both cases reputational solutions are possible, provided that the policymaker is sufficiently far-sighted. But even if regulators are far-sighted, this solution to the investment problem is undermined if capital depreciates slowly. Flexible commitment rules are difficult to monitor and sustain as reputational equilibria. These considerations make the Rogoff-delegation solution to the regulatory commitment problem espcially attractive. The paper concludes with a short discussion that links these theortical considerations to the empirical literature on utility regulatory regimes.

Publication Notes

C72, E61, L51

Publication Research Centre

Regulation Initiative (closed)

Series Number

52

Series

Regulation Initiative Working Paper Series

Available on ECCH

No


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