Regulatory Lag, Monitoring, and the Problem of Abuse
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Regulators have a problem in getting the firm to do what regulators want instead of what the firm itself wants, i.e., to serve the public interest instead of maximize profits. The question here is not how regulators solve that problem, for it has no solution that results in perfect efficiency. Rather, the question is how the regulator can minimize the inefficiency that results from the principal-agent relationship and her relative lack of information.
KeywordsConsumer Surplus Incentive Regulation Participation Constraint Deadweight Loss Federal Energy Regulatory Commission
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