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From commitment to non-commitment: allowing type dynamic in Laffont and Tirole's regulation model

Submitted by Cassiano Breno Machado Alves (cbmachado@fgvmail.br) on 2013-03-25T17:36:15Z
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Previous issue date: 2012-05-03 / This paper investigates the introduction of type dynamic in the La ont and Tirole's regulation model. The regulator and the rm are engaged in a two period relationship governed by short-term contracts, where, the regulator observes cost but cannot distinguish how much of the cost is due to e ort on cost reduction or e ciency of rm's technology, named type. There is asymmetric information about the rm's type. Our model is developed in a framework in which the regulator learns with rm's choice in the rst period and uses that information to design the best second period incentive scheme. The regulator is aware of the possibility of changes in types and takes that into account. We show how type dynamic builds a bridge between com- mitment and non-commitment situations. In particular, the possibility of changing types mitigates the \ratchet e ect'. We show that for small degree of type dynamic the equilibrium shows separation and the welfare achived is close to his upper bound (given by the commitment allocation).

Identiferoai:union.ndltd.org:IBICT/oai:bibliotecadigital.fgv.br:10438/10688
Date January 2013
CreatorsAlves, Cassiano Breno Machado
ContributorsCosta, Carlos Eugênio da, Carrasco, Vinícius, Escolas::EPGE, FGV, Moreira, Humberto Ataíde
Source SetsIBICT Brazilian ETDs
LanguageEnglish
Detected LanguageEnglish
Typeinfo:eu-repo/semantics/publishedVersion, info:eu-repo/semantics/masterThesis
Sourcereponame:Repositório Institucional do FGV, instname:Fundação Getulio Vargas, instacron:FGV
Rightsinfo:eu-repo/semantics/openAccess

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