By Jean-Jacques Laffont
Extra then only a textbook, A conception of Incentives in Procurement and Regulation will advisor economists' examine on legislation for years yet to come. It makes a tricky and massive literature of the hot regulatory economics obtainable to the common graduate pupil, whereas delivering insights into the theoretical principles and stratagems no longer on hand in different places. in line with their pathbreaking paintings within the program of principal-agent idea to questions of law, Laffont and Tirole boost a man-made process, with a selected, even though now not specific, concentrate on the law of traditional monopolies reminiscent of army contractors, application businesses, and transportation professionals. The book's transparent and logical association starts with an creation that summarizes regulatory practices, recounts the heritage of proposal that resulted in the emergence of the recent regulatory economics, units up the fundamental constitution of the version, and previews the industrial questions tackled within the subsequent seventeen chapters. The constitution of the version built within the introductory bankruptcy is still an identical all through next chapters, making sure either balance and consistency. The concluding bankruptcy discusses vital parts for destiny paintings in regulatory economics. each one bankruptcy opens with a dialogue of the industrial matters, a casual description of the appropriate version, and an summary of the implications and instinct. It then develops the formal research, together with enough causes for people with little education in info economics or video game concept. Bibliographic notes offer a ancient viewpoint of advancements within the quarter and an outline of complementary examine. precise proofs are given of all significant conclusions, making the e-book helpful as a resource of recent examine concepts. there's a huge set of evaluate difficulties on the finish of the publication. 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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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. Fifth, even though pricing during an experiment reflects the fixed cost, the ultimate goal is to return to MC pricing or to shut down the activity.
Like COS regulation, PC regulation fixes the firm's prices for some period of time. In spirit, however, it is different in three respects. First, PC regulation is meant to be prospective rather than retrospective. The firm's historical cost is not meant to be the basis for future prices; rather the price cap is intended to be the regulatory equivalent of a fixed-price contract and thus to be high powered. Second, the firm is granted a downward flexibility in its prices, which in particular allows it to adjust its structure of relative prices.
Previous page See Coase (1970) for an historical perspective. page_20 next page > If you like this book, buy it! < previous page 44 page_21 next page > 45 Page 21 Figure 2 Short-term and long-term marginal costs Figure 3 Load curve marginal demand; in the former case capacity must be expanded. Prices should accordingly reflect the differences in marginal costs. The simplest model of peak-load pricing is as follows: The firm chooses a capacity K to be used during n periods. The investment cost is c0K.