Optimal state-contingent regulation under limited liability

@inproceedings{GaryBobo2003OptimalSR,
  title={Optimal state-contingent regulation under limited liability},
  author={Robert Gary-Bobo and Yossi Spiegel},
  year={2003}
}
We consider an optimal regulation model in which the regulated ...rm’s production cost is subject to random, publicly observable shocks. The distribution of these shocks is correlated with the ...rm’s cost type which is private information. The regulator designs an incentive compatible regulatory scheme which adjusts itself automatically ex post given the realization of the cost shock. We derive the optimal scheme assuming that there is an upper bound on the ...nancial losses that the ...rm can… CONTINUE READING
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