A new era of theoretical computer science addresses fundamental problems about auctions, networks, and human behavior.

http://www.maths.lse.ac.uk/Personal/stengel/TEXTE/agt-stengel.pdf

Algorithmic Game Theory

The paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier (1) has superior information about the cost of the project and (2) invests in cost reduction. The main result states that, under risk neutrality, the supplier announces an expected cost and is given an incentive contract linear in cost overruns. This (optimal) contract moves toward a fixed-price contract as the announced cost decreases. An investment choice is then introduced and the use of a rate-of-return regulation is studied.

/pdf/using-cost-observation-to-regulate-firms-z4nu7nlg6z.pdf

Using Cost Observation to Regulate Firms

In the typical regulatory scheme a franchised monopoly has little incentive to reduce costs. This article proposes a mechanism in which the price the regulatedfirm receives depends on the costs of identical firms. In equilibrium each firm chooses a socially efficient level of cost reduction. The mechanism generalizes to cover heterogeneous firms with observable differences. Medicare's prospective reimbursement of hospitals by using diagnostically related groups is a scheme very similar to the one outlined here.

A Theory of Yardstick Competition

This paper begins with a sketch of the New Institutional Economics, with special emphasis on the ‘institutional environment’ (North and others) and the ‘institutions of governance’ (Coase and others) Thereafter the paper mainly emphasizes the applications of transaction cost economics to the study of governance, the object being to effect an economizing alignment between transactions, which differ in their attributes, and governance structures (firms, markets, hybrids, bureaus), which differ in their cost and competence I raise a series of issues – phenomena of interest, describing human agents, describing firms, purposes served, scaling up – to which any would-be theory of the firm should be expected to speak and indicate how transaction cost economics responds to each I thereafter describe the mechanisms through which transaction cost economics is implemented and develop some of the core conceptual supports out of which it works Applications to public bureaus, strategic management, and intractable transactions are sketched

Transaction Cost Economics: How It Works; Where It is Headed

Modelling and forecasting the diffusion of innovation – A 25-year review

Electricity transmission has become the pivotal industry segment for electricity restructuring. Yet, little is known about the shape of transmission cost functions. Reasons for this can be a lack of consensus about the definition of transmission output and the complexitity of the relationship between optimal grid expansion and output expansion. Knowledge of transmission cost functions could help firms (Transcos) and regulators plan transmission expansion and could help design regulatory incentive mechanisms. We explore transmission cost functions when the transmission output is defined as point-to-point transactions or financial transmission right (FTR) obligations and particularly explore expansion under loop-flows. We test the behavior of FTR-based cost functions for distinct network topologies and find evidence that cost functions defined as FTR outputs are piecewise differentiable and that they contain sections with negative marginal costs. Simulations, however, illustrate that such unusual properties do not stand in the way of applying price-cap incentive mechanisms to real-world transmission expansion.

Long-Run Cost Functions for Electricity Transmission

This chapter contains sections titled: Introduction, Theory of “Universal Service”, What Does It Cost to Provide Phone Service?, The New Federal Program, Who Gets the Subsidy?, Demographic Information, Conclusions, Notes, References

Ingo Vogelsang

Papers

Long-Run Cost Functions for Electricity Transmission

Winners and Losers from the Universal Service Subsidy Battle

Die Zukunft der Entgeltregulierung im deutschen Telekommunikationssektor

The effects of markets on public enterprise conduct, and vice versa

Resale und konsistente Entgeltregulierung