A theory of incentives in procurement and regulation by Jean-Jacques Laffont

By Jean-Jacques Laffont

Extra then only a textbook, A conception of Incentives in Procurement and Regulation will advisor economists' study on law for future years. It makes a tricky and massive literature of the hot regulatory economics available to the common graduate scholar, whereas delivering insights into the theoretical rules and stratagems no longer on hand in different places. according to their pathbreaking paintings within the program of principal-agent idea to questions of rules, Laffont and Tirole improve an artificial technique, with a selected, although now not particular, specialize in the law of average monopolies comparable to army contractors, software businesses, and transportation specialists. The book's transparent and logical association starts with an creation that summarizes regulatory practices, recounts the background of proposal that ended in the emergence of the hot regulatory economics, units up the fundamental constitution of the version, and previews the industrial questions tackled within the subsequent seventeen chapters. The constitution of the version built within the introductory bankruptcy continues to be an identical all through next chapters, making sure either balance and consistency. The concluding bankruptcy discusses vital parts for destiny paintings in regulatory economics. every one bankruptcy opens with a dialogue of the industrial matters, an off-the-cuff description of the acceptable version, and an summary of the implications and instinct. It then develops the formal research, together with enough factors for people with little education in info economics or video game thought. Bibliographic notes offer a ancient viewpoint of advancements within the quarter and an outline of complementary learn. specific proofs are given of all significant conclusions, making the booklet priceless as a resource of recent learn options. there's a huge set of evaluate difficulties on the finish of the e-book. Jean-Jacques Laffont is Professor of Economics at Université des Sciences Sociales in Toulouse the place Jean Tirole is clinical Director on the Institut d'Economié Industrielle.

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In particular, even though price exceeds marginal cost, pricing is unrelated to average cost pricing, since price is independent of the fixed cost. Criticism 2 Cease and the social value of maintaining production. A more fundamental criticism of MC pricing, due to Cease (1945, 1946; see also Wilson 1945) applies to a firm or a product whose existence is not a forgone conclusion. It may be an existing bus or railway line that runs a deficit and is a candidate for closure or a new product whose value added relative to the existing substitutes is being discussed.

Too high a price ceiling makes the firm an unregulated monopolist, too low a cap conflicts with viability, and in between the 'right" price level is difficult to compute. Like COS regulation, PC regulation fixes the firm's prices for some period of time. In spirit, however, it is different in three respects. First, PC regulation is meant to be prospective rather than retrospective. The firm's historical cost is not meant to be the basis for future prices; rather the price cap is intended to be the regulatory equivalent of a fixed-price contract and thus to be high powered.

Incentive contracts are often implemented using automatic rate adjustment mechanisms (ARAMs), whereby prices are adjusted every three or six months to changes in input prices without the lengthy proceedings associated with rate cases. To avoid cost-plus features, only a fraction of cost changes relative to some predetermined (historical or prospective) target are passed on. 34 40 41 30. See,, for example, Kahn (1970, vol 2, p. 48). 31. See FERC Report (1989, pp. 93-97) and Joskow and Schmalensee (1986, p.

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