Shourjo Chakravorty

Title: Cost Information Transmission in Regulation

Presenter: Shourjo Chakravorty

Affiliation: Istanbul Technical University, Department of Economics

Date: October 4, 2019

Time: 14:30

Location: K-326

Abstract: In rate-of-return regulation, a firm applies to the regulator for a revenue increase that is supposed to reflect its increased costs. I prove that for a risk-neutral firm, the only equilibrium that can exist is the one in which there is no cost information transmission from the firm to the regulator. I argue that this equilibrium is consistent with empirical results from Florida that there seems to be no association between the firm’s allowed-revenue increase and the change in its future operating cost.

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