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

Telecommunications pricing: Nonlinear tariffs

The informationally simple approach to incentive regulation applies mechanisms that translate the regulator’s objective function into the firm’s profit-maximizing objective These mechanisms come in two forms, one based on subsidies/taxes,the other based on constraints/ price caps In spite of a number of improvements and a good empirical track record simple approaches so far remain imperfect The current paper comes up with a new proposal, called H-R-G-V, which blends the two traditions and is shown to apply well to electricity transmission pricing and investment In particular, it induces immediately optimal pricing/investment but is not based on subsidies In the transmission application, the H-RG- V approach is based on a bilevel optimization with the transmission company (Transco) at the top and the independent system operator (ISO) at the bottom level We show that HR- G-V, while not perfect, marks an improvement over the other simple mechanisms and a convergence of the two traditions We suggest ways to deal with remaining practical issues of demand and cost functions changing over time

A Simple Regulatory Incentive Mechanism Applied to Electricity Transmission Pricing and Investment

Regulation Without Commitment: Price Regulation of UK Utilities

Public divestiture is the transfer of enterprises from government to private ownership. This paper studies the divestiture decision by focusing on the various values of the public enterprise. The problem is summed up by the need to identify relationships between, and the determinants of, the sale price and three fundamental values of the enterprise: social value under continued government operation; social value under private operation; and private value under private operation. By focusing on price and value, some light can be shed on the following questions related to privatization: should the enterprise be sold? To whom should it be sold? At what price should it be sold? The study deals with these questions in the context of differing market assumptions, and takes into account a number of factors, such as shadow-pricing, taxes and synergies. The study comments on the applications of the method for ex post evaluation of divestiture.

Ingo Vogelsang

Papers

Telecommunications pricing: Nonlinear tariffs

A Simple Regulatory Incentive Mechanism Applied to Electricity Transmission Pricing and Investment

Regulation Without Commitment: Price Regulation of UK Utilities

The economics of divestiture : ex ante valuation and ex post evaluation

Cost Methodologies and Pricing Schemes to Support the Transition