Regulation with rationed information or delegation: Solutions to the under- investment problem?

Levine, P and Trillas, F (2001) Regulation with rationed information or delegation: Solutions to the under- investment problem? Working Paper. London Business School Regulation Initiative Working Paper Series.

Abstract

A new perspective is provided on the underinvestment problem in the regulation of a firm with market power. We compare a political equilibrium based on a voting model with lobbying with a delegation equilibrium, where a government can delegate to a particular 'type' of proor antiindustry regulator. Our analysis suggests two possible ways in which we may observe effective, although secondbest, price regulation that both encourages socially optimal investment and ensures consumers benefit: first, voters receive just the amount of information that maximizes social welfare and second, the decision on price are delegated to a sufficient, but not excessively, proindustry regulator