Regulating a risk-averse firm under incomplete information
Tóm tắt
We examine the optimal regulatory policy for a risk-averse firm when the firm is imperfectly informed about its efficiency parameter for a project at the time of contracting. The firm’s risk aversion shifts the optimal regulatory policy from a fixed-price contract to a cost-plus contract. The optimal regulatory policy entails undereffort by an inefficient firm as in Laffont and Tirole (J Polit Econ 94(3):614–641, 1986) and the effort distortion increases as the firm becomes more risk-averse. Further, the regulator benefits from sequential contracting with the firm where the firm chooses contract terms gradually as it acquires information, albeit the benefit diminishes as the firm becomes more risk-averse.
Tài liệu tham khảo
Dai C., Lewis T. and Lopomo G. (2006). Delegating management to experts. Rand Journal of Economics 37(3): 503–520
Laffont J.J. and Rochet J.C. (1998). Regulation of a risk averse firm. Games and Economic Behavior 25: 149–173
Laffont J.J. and Tirole J. (1986). Using cost observation to regulate firms. Journal of Political Economy 94(3): 614–641
Salanié B. (1990). Sélection Adverse et Aversion pour le Risque. Annales d’Economie et Statistique 18: 131–150
Sappington D. (1982). Optimal regulation of research and development under imperfect information. Bell Journal of Economics 13(1): 354–368