Strategic firm behavior under a dynamic regulatory-adjustment process
The regulatory mechanism proposed by Vogelsang and Finsinger (V-F) (Bell. J. Economics, Vol. 10, No. 1, 1053 (Spring 1979)) will induce the regulated firm to adopt behavior other than myopic profit maximization. Pure waste, inefficient factor utilization, excessive research and development, and overinvestment in demand-increasing expenditures may be employed by the firm to increase long-run profits. The particular type of strategic behavior adopted, and the extent to which it is pursued, will depend upon the firm's allowed rate of return on capital, its discount rate, and the information it receives regarding the regulatory regime. Under reasonable conditions, the strategic behavior induced by V-F regulation will cause a significant reduction in consumers' surplus producer's profit below the level achieved in the absence of any regulation.
- Research Organization:
- Princeton Univ., NJ
- OSTI ID:
- 6438429
- Journal Information:
- Bell J. Econ.; (United States), Journal Name: Bell J. Econ.; (United States) Vol. 11:1; ISSN BJECD
- Country of Publication:
- United States
- Language:
- English
Similar Records
Effect of a fuel-adjustment clause on a regulated firm's selection of inputs
Behavior of the firm: the US petroleum pipeline industry under regulatory constraint