| : |
(Bert Willems and Gijsbert Zwart)
Abstract : |
We model the optimal regulation of continuous, irreversible, capacity expansion, where a regulated firm has private information about capacity costs, investments are financed from the firm's cash flows, and demand is stochastic. The optimal mechanism can be implemented as a revenue tax that increases with the level of the price cap. If the degree of asymmetric information is large, then the optimal mechanism consists of a laissez-faire regime for low-cost firms.That is the firm's price cap corresponds to that of an unregulated monopolist, and it is not taxed. This 'maximal distortion at the top' is necessary to provide information rents, as direct subsidies are not feasible.
By : |
Associate Prof.Bert Willems Department of Economics, Tilburg University.
Venue : |
Room 303, 3rd Floor, Faculty of Economics, Thammasat University, (Tha Prachan Campus)