By Jean-Jacques Laffont
Extra then only a textbook, A conception of Incentives in Procurement and Regulation will consultant economists' examine on legislation for years yet to come. It makes a tough and big literature of the hot regulatory economics obtainable to the typical graduate pupil, whereas providing insights into the theoretical rules and stratagems no longer to be had somewhere else. in response to their pathbreaking paintings within the software of principal-agent thought to questions of legislation, Laffont and Tirole advance a man-made method, with a specific, even though now not particular, concentrate on the legislation of normal monopolies comparable to army contractors, application businesses, and transportation gurus. The book's transparent and logical association starts off with an advent that summarizes regulatory practices, recounts the background of concept that ended in the emergence of the recent regulatory economics, units up the fundamental constitution of the version, and previews the commercial 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 very important components for destiny paintings in regulatory economics. every one bankruptcy opens with a dialogue of the commercial concerns, a casual description of the appropriate version, and an outline of the implications and instinct. It then develops the formal research, together with adequate motives for people with little education in info economics or online game concept. Bibliographic notes supply a historic standpoint of advancements within the region and an outline of complementary examine. specific proofs are given of all significant conclusions, making the booklet priceless as a resource of contemporary examine strategies. there's a huge set of overview difficulties on the finish of the e-book. Jean-Jacques Laffont is Professor of Economics at Université des Sciences Sociales in Toulouse the place Jean Tirole is clinical Director on the Institut d'Economié Industrielle.
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Previous page page_17 next page > If you like this book, buy it! < previous page page_18 next page > Page 18 business services. ). AT&T can adjust its price on an individual service within some band on a two-week notice; the notice is a bit longer for price changes above the band (90 days) and below (45 days). If the firm wants its average price to exceed the cap, a lengthy regulatory process with full cost examination is launched that resembles COS regulatory reviews. Hybrid Price-Cap-Incentive Regulation Mechanisms Under a pure price cap the firm's realized profit or cost is not used explicitly in the regulatory contract (neither is it supposed to be used implicitly at the regulatory review).
40 Actually it should be noted that with its constitutional guarantee of a fair rate of return, COS regulation may well offer more protection of measurable investment than PC regulation. Another difference between COS and PC is that observable and nonpersistent cost savings are not penalized under PC, even though they will tomorrow lead to a price decrease under COS. Still, overall COS and PC regulations have a lot in common. Besides the differences described above, the contrast between the two modes is mostly one of emphasis.
The PC regulation introduced in California in 1990 sets a benchmark rate of return of 13%; earnings in excess of 13% are shared equally up to 18%, while earnings above 18% benefit consumers only. Convergence of Regulatory Schemes As many authors38 have noted, it would be simpleminded to make a strong distinction between COS and PC regulations on the basis that one is very low powered and the other very high powered. After all in both regimes prices are set by the regulator for some length of time.
A theory of incentives in procurement and regulation by Jean-Jacques Laffont