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Regulation under Financial Constraints

Publication Date
  • D82
  • L51
  • H42
  • Ddc:330
  • Regulation
  • Asymmetric Information
  • Monopolist
  • Regulierung
  • Budgetrestriktion
  • Monopol
  • Kostenstruktur
  • Theorie


This article studies the problem of regulating a monopolist with unknown marginal cost. The originality of the paper is to consider that the regulator faces a cash-in-advance constraint. The introduction of such a constraint not only reduces the amount of public good provided but also limits the instruments available to the regulator. The wealth constraint could change the optimal regulatory contract from a two-part tariff, where the quantities produced depend on the firm's cost, to a fixed fee where the firm produces the same quantity whatever its cost.

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