Regulation with rationed information or delegation: Solutions to the under- investment problem?

Economics

Regulation Initiative Working Paper Series

2001

A new perspective 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 equilibrium, where a government can delegate to a particular 'type' of pro-or anti-industry regulator. 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 receive just the amount of information that maximizes social welfare and second, the decision on price are delegated to a sufficient, but not excessively, pro-industry regulator

Regulation Initiative (closed)

43

Regulation Initiative Working Paper Series

No