Optimal Regulation of Lumpy Investments

G. Zwart; D.P. Broer

Optimal Regulation of Lumpy Investments

G. Zwart, D.P. Broer

Research output: Working paper › Discussion paper › Other research output

568 Downloads (Pure)

Abstract

When a monopolist has discretion over the timing of infrastructure investments, regulation of post-investment prices interferes with incentivizing socially optimal investment timing. In a model of regulated lumpy investment under uncertainty, we study regulation when the regulator can condition price caps on investment timing. We analyse optimal regulation when there is asymmetric information on investment costs and regulation has to respect a budget constraint. We show that optimal regulation involves a price cap that decreases as a function of the monopolist's chosen investment time.

Original language	English
Place of Publication	Tilburg
Publisher	TILEC
Number of pages	18
Volume	2012-020
Publication status	Published - 2012

Publication series

Name	TILEC Discussion Paper
Volume	2012-020

Keywords

investment under uncertainty
asymmetric information
optimal regulation
budget constraint

Access to Document

2012 020

http://ssrn.com/abstract=2057859

Cite this

@techreport{8d7c3e884eed47a2ad0c13cf9ff42aaa,

title = "Optimal Regulation of Lumpy Investments",

abstract = "When a monopolist has discretion over the timing of infrastructure investments, regulation of post-investment prices interferes with incentivizing socially optimal investment timing. In a model of regulated lumpy investment under uncertainty, we study regulation when the regulator can condition price caps on investment timing. We analyse optimal regulation when there is asymmetric information on investment costs and regulation has to respect a budget constraint. We show that optimal regulation involves a price cap that decreases as a function of the monopolist's chosen investment time.",

keywords = "investment under uncertainty, asymmetric information, optimal regulation, budget constraint",

author = "G. Zwart and D.P. Broer",

note = "Pagination: 18",

year = "2012",

language = "English",

volume = "2012-020",

series = "TILEC Discussion Paper",

publisher = "TILEC",

type = "WorkingPaper",

institution = "TILEC",

}

TY - UNPB

T1 - Optimal Regulation of Lumpy Investments

AU - Zwart, G.

AU - Broer, D.P.

N1 - Pagination: 18

PY - 2012

Y1 - 2012

N2 - When a monopolist has discretion over the timing of infrastructure investments, regulation of post-investment prices interferes with incentivizing socially optimal investment timing. In a model of regulated lumpy investment under uncertainty, we study regulation when the regulator can condition price caps on investment timing. We analyse optimal regulation when there is asymmetric information on investment costs and regulation has to respect a budget constraint. We show that optimal regulation involves a price cap that decreases as a function of the monopolist's chosen investment time.

AB - When a monopolist has discretion over the timing of infrastructure investments, regulation of post-investment prices interferes with incentivizing socially optimal investment timing. In a model of regulated lumpy investment under uncertainty, we study regulation when the regulator can condition price caps on investment timing. We analyse optimal regulation when there is asymmetric information on investment costs and regulation has to respect a budget constraint. We show that optimal regulation involves a price cap that decreases as a function of the monopolist's chosen investment time.

KW - investment under uncertainty

KW - asymmetric information

KW - optimal regulation

KW - budget constraint

M3 - Discussion paper

VL - 2012-020

T3 - TILEC Discussion Paper

BT - Optimal Regulation of Lumpy Investments

PB - TILEC

CY - Tilburg

ER -

Optimal Regulation of Lumpy Investments

Abstract

Publication series

Keywords

Access to Document

Fingerprint

Cite this