Title: Cost Information Transmission in Regulation
Presenter: Shourjo Chakravorty
Affiliation: Istanbul Technical University, Department of Economics
Date: October 4, 2019
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.