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• W3483046 abstract "The aim of our research is to propose a pattern of government intervention whichdiffers from the standard approach and to assess its welfare implications. We argue thatin many circumstances regulation turns out to be a process of give-and-take rather thantake-it-or-leave-it. More precisely, our idea is that the regulatory policy can be more generallymodelled as the outcome of a bargaining process, which normally entails the activeparticipation of each agent involved in the regulatory interaction.In Chapter 1, following Spulber’s intuition,regulation is modelled as a negotiation process between the consumers’ and firm’s interestgroups, with the agency in the role of mediator. Our analysis shows that the regulatedfirm exploits its bargaining power to obtain a subsidy which is higher than under a take-it-or-leave-it offer of a total surplus maximizing mechanism. The oversubsidization ofthe firm penalizes consumers and entails a total surplus loss. We find also that, underasymmetric cost information, the range of the firm’s types participating in equilibrium inthe regulatory interaction may be wider under the negotiated policy than under the take-it-or-leave-it policy.We would like to stress that Chapter 1 is introductory and constitutes a preliminarystep for our research. On top of the specific analytical results, its contribution is twofold.First, it describes the basic features of a negotiated regulatory policy and its welfare implications.Second, it shows that the bargaining approach to regulation actually represents anextention rather than a negation of the standard approach. In particular, the bargaining overa regulatory policy may be interpreted as a general set-up which includes the take-it-or-leave-it offer as a limit case, that occurs when the firm is deprived of any bargaining powerduring negotiations.The discussion in Chapter 2 develops the previous framework and considers an agencywhich is delegated by Congress to represent consumers’ interests in the bargaining processwith the firm over a regulatory policy.The existence of a negotiation activity between the agency and the firm has beenby and large ignored by the economic literature, with the main exception represented by Scarpa’s contributions. However, Armstrong and Sappington, in their reviewon the recent developments in the theory of regulation, have recognized that the standardformulation, which allocates all the bargaining power to the regulator, has been adopted fortechnical convenience rather than for realism.While it has been previously depicted as an impartial arbitrator, the agency is assumedin Chapter 2 to represent a bargaining party, whose nature may be either benevolentor self-interested. In this setting, we study the potential for collusion between the regulatoryagency and the regulated firm, a phenomenon which often occurs in a regulatoryrelationship. The side contracting between the two colluding partners is modelled as a(possibly illegal) negotiation process parallel to the bargaining over the regulatory policy.Our analysis shows that consumers are penalized by corruption, since they entirely subsidizethe total stake in collusion. Furthermore, our model suggests that a stronger agency inthe bargaining process makes it more desirable for Congress (i.e. for consumers) to allowcollusion in equilibrium.In the first two chapters, we have considered the existence of just one monopolisticmarket. Chapter 3, which has benefited from the fundamental contribution of Carlo Scarpa,extends the previous setting and examines the regulation of two interdependent markets,whose goods are substitutes. This is the case, for instance, in the industries of naturalgas and electricity or railroads and motorways. We focus on the design of the regulatorystructure. In particular, we intend to determine whether it is better for consumers’ welfareto have a unique authority for both markets or to split the regulatory jurisdiction betweentwo different agencies. When the regulatory policy is the outcome of a take-it-or-leave-it offer, our analysisshows that two agencies - each maximizing total surplus in its own market - set priceswhich are lower than those arising under regulatory centralization.On the contrary, when the regulatory policy is the outcome of a bargaining process,we find that a unique regulator, which sequentially bargains with both firms, gives consumersa higher welfare level, as long as the shadow cost of public funds, through whichproduction is subsidized, is below a certain threshold. Hence, under negotiations our modelsuggests that centralization should be the best regulatory pattern for consumers in developedcountries, where tax collection is not too distortionary. If the shadow cost is abovethat threshold, as it often happens in developing countries, decentralizing bargaining turnsout to be consumers’ welfare improving." @default.
• W3483046 created "2016-06-24" @default.
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• W3483046 date "2009-02-18" @default.
• W3483046 modified "2023-09-28" @default.
• W3483046 title "The Regulatory Policy as the Outcome of a Bargaining Process" @default.
• W3483046 hasPublicationYear "2009" @default.
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