This paper analyzes the allocative properties of price cap regulation under very general hypotheses on the nature of society's preferences. We propose a generalized price cap that ensures the convergence to optimal~second best! prices in the long-run equilibrium for virtually any form of the welfare function. Hence, the result of the convergence to Ramsey prices of Laspeyres-type price cap regulation is a particular instance of our more general result. We also provide an explicit and relatively easy to calculate and implement generalized price cap formula for distributionally weighted utilitarian welfare functions, as suggested by Feld-stein~1972a!. !. We are very much indebted to Gianni De Fraja, who read and made valuable comments on previous versions of this paper. We also wish to thank Paolo Bertoletti, Tim Brennan, Simon Cowan, Ninette Pilegaard, Ingo Vogelsang, and seminar audiences at the University of Warwick and Rome III. We received useful comments from participants at the 1999 ITS, EARIE, and SIEP Conferences and EEA Summer School. Comments and suggestions from an associate editor and two referees of this journal have contributed to substantial improvement of the paper. The usual disclaimer applies.
Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Enforcement and Environmental Quality in a Decentralized Emission Trading SystemSummary This paper addresses the issue of whether the powers of monitoring compliance and allocating tradeable emissions allowances within a federation of countries should be appointed to a unique federal regulator or decentralized to several local regulators. To this end, we develop a two stage game played by environmental regulator(s) and the polluting industries of two countries. Regulator(s) choose the amount of emission allowances to be issued and set the level of monitoring effort to achieve full compliance, while regulated firms choose actual emissions and the number of permits to be held. We identify various, possibly conflicting, spillovers among states in a decentralized setting. We show that cost advantage in favor of local regulators is not sufficient to justify decentralization. Nevertheless, cost differential in monitoring violations can imply lower emissions and greater welfare under a decentralized institutional setting than under a centralized one. However, while a better environmental quality under decentralization is a sufficient condition for higher welfare under the same regime, it is not also a necessary condition. Keywords
We apply the idea of relation contracting to a very simple problem of regulating a single-product monopolistic firm when the regulatory instrument is a fixed-price contract, and quality is endogenous and observable, but not verifiable. We model the interaction between the regulator and the firm as a dynamic game, and we show that, provided both players are sufficiently patient, there exist self-enforcing regulatory contracts in which the firm prefers to produce the quality mandated by the regulator, while the regulator chooses to leave the firm a positive rent as a reward to its quality choice. We also show that the socially optimal self-enforcing contract implies a distortion from the second best, which is greater the more impatient is the firm and the larger is the (marginal) effect of the contractual price on the profits the firm would make by deviating from the offered contract. Whenever the punishment profits are strictly positive, even if the firm were infinitely patient, the optimal contract would ensure a Ramsey condition but with positive profits to the firm. Our result also illustrates that, whenever the firm's output has some unverifiable component, optimal regulatory lag in fixed-price contract should be reduced to limit the reward of the firm's opportunistic behaviour. JEL Numbers: L13, L50.
This paper presents a review of the engineering testing program related to development of the PGT-25 gas turbine. The experimental methods employed and their capability of providing information for the tuning of the engine and its parts are discussed. Testing has continuously supported turbine design and development; integration of analytical and experimental procedures has proven to be efficient for successful final engine testing. Full load testing, using well developed instrumentation, has made it possible to know actual component behavior and engine performance in steady and transient states, over the entire speed and power range. The reliability of the machine has been assessed through the results of these tests.
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