Dynamic Effects of Regulation

Dynamic Effects of Regulation

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The second paper, qThe Dynamic Implication of Investment of Price Regulationq, theoretically studies the impact of a statically desirable regulatory scheme on investment. This paper tests the effects of the mechanism proposed by Vogelsang and Finsinger (1979) on investment and technological progress. The V-F mechanism induces the firm to behave in accordance with a second best outcome. The model incorporates endogenous technology where marginal cost is a function of previous investments. Simulation results suggest that the V-F mechanism causes a significant distortion in investment, since in the unregulated case, marginal cost falls rapidly due to the aggressive investment. This implies that the optimal regulation of any kind derived from a static model may entail a non-trivial distortion on investment and other dynamic efficiencies. Another implication is that dynamic incentives should be taken into account in evaluating a policy.Several literature warrant possible endogeneity of state regulatory regimes and the extent of competition and suggest ... of incentive regulation by seeing local carriera#39;s service qualities (see Sappington, 2003 for a survey of the literature).

Title:Dynamic Effects of Regulation
Publisher:ProQuest - 2008


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