Strategic Firm Behavior under a Dynamic Regulatory Adjustment Process

Abstract

The regulatory mechanism proposed by Vogelsang and Finsinger (V-F) will induce the regulated firm to adopt behavior other than myopic profit maximization. Pure waste, inefficient factor utilization, excessive research and development, and overinvestment in demand-increasing expenditures may be employed by the firm to increase long-run profits. The particular type of strategic behavior adopted, and the extent to which it is pursued, will depend upon the firm's allowed rate of return on capital, its discount rate, and the information it receives regarding the regulatory regime. Under reasonable conditions, the strategic behavior induced by V-F regulation will cause a significant reduction in consumers' surplus plus producer's profit below the level achieved in the absence of any regulation.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 155 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.