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By Jean-Jacques Laffont

Extra then only a textbook, A conception of Incentives in Procurement and Regulation will consultant economists' examine on legislation for years yet to come. It makes a tough and massive literature of the hot regulatory economics obtainable to the typical graduate pupil, whereas supplying insights into the theoretical rules and stratagems no longer to be had somewhere else. according to their pathbreaking paintings within the software of principal-agent concept to questions of law, Laffont and Tirole strengthen an artificial procedure, with a selected, even though now not unique, specialise in the rules of common monopolies reminiscent of army contractors, application businesses, and transportation experts. The book's transparent and logical association starts with an advent that summarizes regulatory practices, recounts the background of suggestion that resulted in the emergence of the hot regulatory economics, units up the fundamental constitution of the version, and previews the industrial questions tackled within the subsequent seventeen chapters. The constitution of the version constructed within the introductory bankruptcy continues to be an analogous all through next chapters, making sure either balance and consistency. The concluding bankruptcy discusses very important parts for destiny paintings in regulatory economics. every one bankruptcy opens with a dialogue of the commercial concerns, an off-the-cuff description of the acceptable version, and an summary of the implications and instinct. It then develops the formal research, together with enough factors for people with little education in details economics or video game idea. Bibliographic notes supply a old point of view of advancements within the sector and an outline of complementary examine. specified proofs are given of all significant conclusions, making the ebook worthwhile as a resource of recent study thoughts. there's a huge set of evaluation difficulties on the finish of the ebook. Jean-Jacques Laffont is Professor of Economics at Université des Sciences Sociales in Toulouse the place Jean Tirole is medical Director on the Institut d'Economié Industrielle.

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The simplest model of peak-load pricing is as follows: The firm chooses a capacity K to be used during n periods. The investment cost is c0K. At date , the firm produces at variable cost cqτ. The short-run marginal cost is thus c when qτ < K and when . The long-run marginal cost is [c0 + c]. Figure 2 shows the familiar tangency of the family of the short-term cost curves to the long-term cost curve in this example. Note that while the short-term production function exhibits decreasing returns to scale, the long-term production function has constant returns to scale.

At date , the firm produces at variable cost cqτ. The short-run marginal cost is thus c when qτ < K and when . The long-run marginal cost is [c0 + c]. Figure 2 shows the familiar tangency of the family of the short-term cost curves to the long-term cost curve in this example. Note that while the short-term production function exhibits decreasing returns to scale, the long-term production function has constant returns to scale. Inelastic and Deterministic Demands 45 46 Suppose, in a first step, that the demands at all dates arc known, and they arc price inelastic.

Neither regime is a pure cost-plus or pure fixed-price contract in that the firm is residual claimant for its cost savings for some period of time. What are the differences then? First, prices are rigid under COS and upwardly rigid under PC. 39 In contrast, PC regulation implies that 38. For example, Joskow and Schmalensee (1986) and Vickers and Yarrow (1988). 39. Nonbinding price caps signal completely ineffective price regulation if the regulatory structure is fixed. If the regulated firm enjoys a high-powered incentive scheme such as PC regulation (for reasons to be discussed in this book), and if it is concerned that political pressure might push for a return to more traditional regulation such as COS, it may strategically charge prices below the ceiling even if the ceiling is below the monopoly price, while it would not do so in the absence of uncertainty about the mode of regulation.

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