A theory of incentives in procurement and regulation by Jean-Jacques Laffont

By Jean-Jacques Laffont

Extra then only a textbook, A conception of Incentives in Procurement and Regulation will consultant economists' study on legislation for years yet to come. It makes a tough and massive literature of the hot regulatory economics available to the common graduate pupil, whereas supplying insights into the theoretical rules and stratagems now not on hand somewhere else. in accordance with their pathbreaking paintings within the program of principal-agent conception to questions of law, Laffont and Tirole strengthen a man-made method, with a selected, notwithstanding now not specific, concentrate on the rules of ordinary monopolies akin to army contractors, application businesses, and transportation specialists. The book's transparent and logical association starts with an creation that summarizes regulatory practices, recounts the heritage of inspiration that resulted in the emergence of the recent regulatory economics, units up the elemental constitution of the version, and previews the industrial questions tackled within the subsequent seventeen chapters. The constitution of the version constructed within the introductory bankruptcy continues to be an identical all through next chapters, making sure either balance and consistency. The concluding bankruptcy discusses very important parts for destiny paintings in regulatory economics. each one bankruptcy opens with a dialogue of the commercial matters, an off-the-cuff description of the appropriate version, and an outline of the implications and instinct. It then develops the formal research, together with enough causes for people with little education in details economics or online game idea. Bibliographic notes supply a historic viewpoint of advancements within the region and an outline of complementary study. particular proofs are given of all significant conclusions, making the ebook invaluable as a resource of recent learn recommendations. there's a huge set of assessment difficulties on the finish of the booklet. Jean-Jacques Laffont is Professor of Economics at Université des Sciences Sociales in Toulouse the place Jean Tirole is medical Director on the Institut d'Economié Industrielle.

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Production ought to be abandoned if the demand curve is D2. The regulator has no way of knowing whether D1 or D2 prevails if the consumer gets charged the marginal cost. Coase does not supply a formal analysis, which would build on the theory about the Bayesian learning of the demand curve (see Aghion et al. 1991 for a recent contribution). 47 Third, the experiments should be such that the marginal information value of a price increase would equal its marginal cost in terms of lost demand. Fourth, during an experiment, pricing should reflect the fixed cost because the benefit (if any) of abandoning the activity grows with the fixed cost.

50 51 In period 2 experimentation is worthless, and the government either shuts down the firm or charges marginal cost. If the price p1 charged in period 1 did not generate sales, the firm remains active if and only if Similarly, if p1 generated sales, the firm remains active if and only if Clearly experimentation (in the sense of pricing above v1 in period 1) can be optimal only if the firm is shut down in the event of bad news. Otherwise, sticking to marginal cost is a better policy. Therefore the price should not exceed p1.

Rather, within a given period prices tend to be rigid and not respond to demand or supply shocks. , as gas turbines in electricity) as buffers or by rationing consumers (as is the case here in our fixed capacity formulation). Boiteux (1951) extended the model described above to allow for a normally distributed demand in each period (see Drèze 1964, pp. 18-24, for a full discussion). , see Wilson 1989 and Spulber 1990) has considered more sophisticated rationing schemes. For instance, Wilson (1989) studied the practice of priority servicing in which electric utilities screen the customers for their willingness to pay not only for consumption but also for a low probability of this consumption being interrupted.

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