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On the relative performance of alternative regulatory instruments for constraining a firm's profitability

Lookup NU author(s): Brian Beavis, Professor Ian Dobbs

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Abstract

The issue addressed in this paper is whether certain types of regulatory instruments perform better than others when the regulator's objective is simply to restrain the regulated firm's profitability. Price cap, profit cap, profit/sales and mark-up-on-average cost caps are considered as regulatory instruments, whilst expense preference, profits, and sales revenues are considered as potential arguments in the firm's objective function. The main finding is that, for the range of objective functions considered, the price cap leads to the best outcome from an economic welfare standpoint.

Publication metadata

Author(s): Beavis B, Dobbs IM

Publication type: Article

Publication status: Published

Journal: Zeitschrift fur Nationalokonomie [Journal of Economics]

Year: 1994

Volume: 60

Issue: 3

Pages: 229-253

Print publication date: 01/01/1994

ISSN (print): 0931-8658

ISSN (electronic): 1617-7134

Publisher: Springer

URL: http://dx.doi.org/10.1007/BF01227481

DOI: 10.1007/BF01227481

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