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Essays on economic regulation

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Previous issue date: 2012-07-09 / It is known that stock prices of public listed regulated companies react to price revisions by the regulator, and that the information conveyed by this price reaction might be used by the regulator on the contract design. This paper builds on Laffont and Tirole's (1986) regulation model with observable costs to better understand the effects the inclusion of the stock market can have on the regulator-regulated firm relationship. Our numerical simulations show that the inclusion of the market induce more powerful incentive schemes, with higher cost-reducing efforts, smaller informational rent by the firms and higher overall social welfare. In particular, we find that when the regulator is committed, the presence of short-term investors can make the first-best contract feasible, and that in the non-commitment case the market affects the firm's strategy by making it reveal more information about its cost than it normally would.

Identiferoai:union.ndltd.org:IBICT/oai:bibliotecadigital.fgv.br:10438/10881
Date09 July 2012
CreatorsHollanda, Lavínia
ContributorsCosta, Carlos Eugênio da, Machado, Cecilia, Carrasco, Vinícius, Féres, José Gustavo, Escolas::EPGE, Moreira, Humberto Ataíde
Source SetsIBICT Brazilian ETDs
LanguageEnglish
Detected LanguageEnglish
Typeinfo:eu-repo/semantics/publishedVersion, info:eu-repo/semantics/doctoralThesis
Sourcereponame:Repositório Institucional do FGV, instname:Fundação Getulio Vargas, instacron:FGV
Rightsinfo:eu-repo/semantics/openAccess

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