1 / 6

Impediments

Impediments. Economists Data not available Jurisdictional boundaries limit regulator’s power Regulators must know the following for Ramsey to be an improvement Distortions (when firms price above MC) Degree of interdependence. Complication #1. Goods as inputs

shamus
Download Presentation

Impediments

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Impediments • Economists • Data not available • Jurisdictional boundaries limit regulator’s power • Regulators must know the following for Ramsey to be an improvement • Distortions (when firms price above MC) • Degree of interdependence

  2. Complication #1 • Goods as inputs • Price below MC (Lancaster 1979) • When good is an intermediate good such as electricity, and communication • Effects efficiency in the vertical chain

  3. Complication #2 • Asymmetric information (Sappington 1983) • Regulator knows demand and cost structure • Lacks info on a particular technology structure • Can’t pinpoint cost exactly • If price is set too low, firms leave • If price is set too high, excessive profits • Regulator strategy will deviate from Ramsey

  4. Complication #3 • Long-run vs. Short-run • Long-run elasticities > Short-run elasticities • Long-run substitutability must be accounted for • Distorts incentives elsewhere

  5. Real World • Arguments for ROR and against Ramsey and MC are that regulators will never have full info • Advance in technology complicates Ramsey pricing • Often Ramsey is not implemented with transfers – not Pareto superior • Ramsey- not free of subsidies (i.e. low income) • Kamerschen and Keenan • Ramsey is more of a “theoretical curiosity than a workable regulatory rule.” • Ramsey possible when • Output not strongly linked to other sector demand and supply elasticities

  6. Linked elasticities • Strongly linked • No link

More Related