Strategic Management Behavior Under Reward Structures in a Planned Economy

Verifiable and non-verifiable anonymous mechanisms for regulating a polluting monopolist

“…Proof of Proposition 2 (see Appendix) follows Finsinger and Vogelsang [22]. Given an initial price P 0 , (7) defines the profit-maximizing prices for periods 2 and on, given P 0 and P 1 .…”

“…21 To keep the examples simple and on price as the choice variable of interest, we assume that the current level of abatement is optimal, and that optimal abatement is independent of quantity. 22 Under this assumption, if current abatement were not optimal, it would jump to the optimal level immediately in period 1 under any of the mechanisms. Long-run marginal cost is assumed to be constant at current abatement levels at $0.178/kWh.…”

“…The elasticity estimate is the median long-run elasticity found from the metastudy of Espey and Espey [19]. 22 For example, define abatement to be the fraction of generation sources that are from renewable energy. If we assume that renewable generation sources have a marginal cost one-third higher than non-renewable sources in California, and that marginal cost is the weighted average of the marginal costs of renewable and non-renewable sources, then PG&E's current generation mix of about 70% renewable is nearly optimal.…”

A non-Bayesian piecewise linear approximation adjustment process for incentive regulation

“…In his 1988 article, Vogelsang suggests a regulatory mechanism that is a hybrid between the incremental surplus subsidy (ISS) scheme, advanced by Sappington and Sibley (1988) and the performance index (PI) scheme, advanced by Finsinger and Vogelsang (1985). Under the ISS, the regulated firm receives a subsidy (or pays a tax) in period t, defined as the incremental change in consumer surplus from period t À 1 minus the net cash flow www.elsevier.com/locate/iep (profit excluding the subsidy) of period t À 1.…”

“…In Finsinger and Vogelsang (1985), a verifiable approximation of the change in consumer surplus between period t À 1 and t is defined as…”