TY - JOUR
T1 - The regulation of multiproduct firms. Part I
T2 - Theory
AU - Laffont, Jean Jacques
AU - Tirole, Jean
N1 - Funding Information:
*The authors are grateful to Frank Fisher, Paul Joskow, David Sappington, Dick Schmalensee and two anonymous referees for helpful comments, and to the Ford Foundation, the Pew Charitable Trust, the Guggenheim Foundation, the Center for Energy Policy Research at MIT, the National Science Foundation and the Minis&e de I’Education Nationale for financial support. ‘An exception is Sappington (1983), whose work we discuss in section 4.
PY - 1990/10
Y1 - 1990/10
N2 - 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'.
AB - 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'.
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U2 - 10.1016/0047-2727(90)90049-N
DO - 10.1016/0047-2727(90)90049-N
M3 - Article
AN - SCOPUS:44949290320
VL - 43
SP - 1
EP - 36
JO - Journal of Public Economics
JF - Journal of Public Economics
SN - 0047-2727
IS - 1
ER -