PROBLEM OF NATURAL MONOPOLY REGULATION WITH ASYMMETRIC INFORMATION - THEORETICAL APPROACH

• Authors: Szablewski Andrzej
• Languages of publication: PL

Abstracts

EN

The paper discusses the nature and implications of asymmetry of information in natural monopoly regulation from the theoretical perspective. To reflect the complexity of the subject two main strands of the discussion are presented. The first one that dominates within the theoretical approach is founded on defining two dimensions of the asymmetry which is a situation when the regulator is much less informed on costs than the regulated firm managers. The dimensions are described in the regulatory literature as 'regulation with unknown costs' and 'regulation with unobservable effect'. Both have very serious regulatory implications known as adverse selection and moral hazard which in turn reflect the key regulatory problem i.e. the conflict between allocative and productive efficiency. Existence of trade-offs between different aspects of efficiency means that the optimal regulatory mechanism ( but only in a second best sense) lies between two polar regulatory mechanisms - the traditional cost of service regulation and fixed price, or price cup, regulation. The second strand of discussion is based on Austrian school of economics and it sees the asymmetry of information as only one side of the regulator's imperfect information problem. The other side refers to the inherent indeterminacy of the economic processes that unable regulator and the managers to predict costs accurately. Giving priority to long term interests of consumers, price cup regulation should be taken by regulators as a key option.

Keywords

EN

ADVERSE SELECTION; INCENTIVE REGULATION; INFORMATION ASSYMETRY IN MONOPOLY REGULATION; MORAL HAZARD; PRICE CUP REGULATION

Discipline

• ECONOMICS: ECONOMICS

• Publisher: Institute of Economic Sciences, Polish Academy of Sciences
• Journal: Studia Ekonomiczne (Economic Studies)
• Year: 2008
• Issue: 3-4(58-59)
• Pages: 223-239
• Document type: ARTICLE

Contributors

author

Szablewski Andrzej

• Andrzej Szablewski, Instytut Nauk Ekonomicznych PAN, ul. Nowy Swiat 72, 00-330 Warszawa, Poland

Identifiers

CEJSH db identifier

09PLAAAA05765