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The control of non-localized externalities with asymmetric information

University of British Columbia

This thesis presents a model in which there is a single agent and two principals. The agent is a monopoly firm, while the two principals are regulators who may cooperate when selecting their optimal policies or act as rivals. The specific regulatory problem in which all are involved is the control of acid rain. An environmental regulator chooses a design standard and a public utility regulator chooses a two-part pricing scheme. These choices are made within an environment of limited and asymmetric information. Specifically, we assume the firm knows more about its fixed abatement costs than does either regulator. The firm is able to act strategically when revealing this information. Within the context of this regulation problem, we characterize the equilibrium solutions when the regulators cooperate and when they act as rivals. The non-cooperative game endows the environmental regulator with the status of leader. We also give characterizations for two different kinds of rivalry, extreme rivalry and mild rivalry. In addition, this thesis presents some different results on the bunching properties of these models.

Text

2011-02-16

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http://hdl.handle.net/2429/31372

Economics

University of British Columbia

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