Citation

Discussion Paper Details

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Full Details

Title: Regulation Games

Author(s): Richard Gilbert and David M G Newbery

Publication Date: September 1988

Keyword(s): Nash Equilibrium, Regulation, Regulatory Policy, Repeated Game and Utilities

Programme Area(s): Applied Macroeconomics

Abstract: We examine regulation as a repeated game between a regulator and a utility facing a Markovian sequence of demands. Sunk capital would be expropriated by a regulator concerned only with the short-run interests of consumers. There exist rate of return regulatory policies supporting efficient investment paths with zero expected profits as subgame perfect Nash equilibria, but these policies must under-reward capital in some states of the world. Carefully designed nonlinear price regulation can improve on these equilibrium outcomes, although at higher consumer costs, and only if state-contingent transfers are feasible.

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Bibliographic Reference

Gilbert, R and Newbery, D. 1988. 'Regulation Games'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=267