Optimal Regulation of Lumpy Investments

G. Zwart, D.P. Broer

Research output: Working paperDiscussion paperOther research output

312 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 languageEnglish
Place of PublicationTilburg
PublisherTILEC
Number of pages18
Volume2012-020
Publication statusPublished - 2012

Publication series

NameTILEC Discussion Paper
Volume2012-020

Fingerprint

Lumpy investment
Optimal regulation
Price caps
Investment timing
Monopolist
Asymmetric information
Infrastructure investment
Investment under uncertainty
Optimal investment
Discretion
Budget constraint
Costs

Keywords

  • investment under uncertainty
  • asymmetric information
  • optimal regulation
  • budget constraint

Cite this

Zwart, G., & Broer, D. P. (2012). Optimal Regulation of Lumpy Investments. (TILEC Discussion Paper; Vol. 2012-020). Tilburg: TILEC.
Zwart, G. ; Broer, D.P. / Optimal Regulation of Lumpy Investments. Tilburg : TILEC, 2012. (TILEC Discussion Paper).
@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",

}

Zwart, G & Broer, DP 2012 'Optimal Regulation of Lumpy Investments' TILEC Discussion Paper, vol. 2012-020, TILEC, Tilburg.

Optimal Regulation of Lumpy Investments. / Zwart, G.; Broer, D.P.

Tilburg : TILEC, 2012. (TILEC Discussion Paper; Vol. 2012-020).

Research output: Working paperDiscussion paperOther research output

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 -

Zwart G, Broer DP. Optimal Regulation of Lumpy Investments. Tilburg: TILEC. 2012. (TILEC Discussion Paper).