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Title: The Effect of Awareness and Observability on the Non-contractible Investment of a Regulated Natural Monopoly
Authors: Sağlam, İsmail
Keywords: Monopoly
 Asymmetric information
Issue Date: Dec-2019
Publisher: Springer New York LLC
Source: Saglam, I. (2019). The Effect of Awareness and Observability on the Non-contractible Investment of a Regulated Natural Monopoly. Journal of Industry, Competition and Trade, 1-23.
Abstract: This paper studies the joint effect of the regulator’s ex-ante awareness and ex-post ability to observe on the non-contractible investment activities of a natural monopoly with private marginal cost information. We show that the investment activities are lower when the regulator is ex-ante aware of their existence and ex-post able to observe them than when the regulator is never aware of, and never able to observe, them. This result, which points to the regulated firm’s prevention of ratcheting, is in line with an earlier finding of Tirole (J Polit Econ 94:235–259 1986) obtained in a bargaining model of procurement with two-sided asymmetric information. We also find that the producer welfare and the social surplus is always ex-ante higher when the regulator is unaware of its investment activities than when she is aware. Moreover, our computations show that depending on the specifications of our model, the unawareness of the regulator may positively affect the expected consumer and social welfares, as well.
ISSN: 1566-1679
Appears in Collections:İktisat Bölümü / Department of Economics
Scopus İndeksli Yayınlar Koleksiyonu / Scopus Indexed Publications Collection
WoS İndeksli Yayınlar Koleksiyonu / WoS Indexed Publications Collection

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