The regulation of multiproduct firms. Part I: Theory

Jean Jacques Laffont*, Jean Tirole

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    53 Scopus citations

    Abstract

    This paper develops a normative model of the regulation of a multiproduct firm with private information about its technology and cost-reducing activity. It first characterizes the optimal regulatory scheme and illustrates it through examples. It then derives necessary and sufficient conditions for the 'pricing-incentive dichotomy' to hold, i.e. conditions under which the cost reimbursement rule, but not pricing, is used to provide incentives. Last, the paper studies the regulation of the multiproduct firm in a general equilibrium framework both to assess the validity of the partial equilibrium approach and to formalize the notion of 'taxation by regulation'.

    Original languageEnglish (US)
    Pages (from-to)1-36
    Number of pages36
    JournalJournal of Public Economics
    Volume43
    Issue number1
    DOIs
    StatePublished - Oct 1990

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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