Internet Archive Scholar

Regulating a Risk-Averse Firm Under Incomplete Information Regulating a Risk-Averse Firm under Incomplete Information

Chifeng Dai, Chifeng Dai
2006 unpublished

Preserved Fulltext

fulltext thumbnail
Web Archive Capture PDF (155.7 kB)
https://web.archive.org/web/20180504003745/http://opensiuc.lib.siu.edu/cgi/viewcontent.cgi?article=1044&context=econ_dp

A copy of this work was available on the public web and has been preserved in the Wayback Machine. The capture dates from 2018; you can also visit the original URL. The file type is application/pdf.

We examine the optimal regulatory policy for a risk-averse ...rm when the ...rm is imperfectly informed about its e¢ ciency parameter for a project at the time of contracting. The ...rm's risk aversion shifts the optimal regulatory policy from a ...xed-price contract to a cost-plus contract. The optimal regulatory policy entails undere¤ort by an ine¢ cient ...rm as in Lafont and Tirole (1986) and the e¤ort distortion increases as the ...rm becomes more risk-averse. Further, the regulator
more » ... ts from sequential contracting with the ...rm where the ...rm chooses contract terms gradually as it acquires information, albeit the bene...t diminishes as the ...rm becomes more risk-averse.
fatcat:nbymyo4q2re3zjhv7wqjj2plp4
Citation

Chifeng Dai, Chifeng Dai. "Regulating a Risk-Averse Firm Under Incomplete Information Regulating a Risk-Averse Firm under Incomplete Information." (2006)