Essays in Regulatory Economics

Thanacoody, Selvin (2022) Essays in Regulatory Economics. Doctoral thesis, University of East Anglia.

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This thesis is a collection of four essays related to the economics of regulation. The first chapter presents a theoretical analysis of a water utility’s choice of network water retention and service quality when it is constrained by either price cap or rate of return regulation. Under price cap, when demand is inelastic enough, there is a trade-off between water retention and quality provision. A similar trade-off appears under rate of return regulation, but only for low levels of the rate of return. These predictions are tested in the second essay by fitting linear models of water retention and service quality to Eastern European water utility data. We find evidence that higher prices lead to lower water retention rates but to higher quality, while higher rates of return, in the form of higher costs of capital, lead to higher water retention rates but reduce quality provision. We also find that firms under price cap regulation retain less water in their network but provide higher service quality. Considering regulated industries in the broader sense, chapter 3 explores how incentives to reduce costs are affected when a monopolist is regulated by multiple regulators/principals. We use a common agency framework that allows the regulators to have different valuations for the firm’s rent and different regulatory costs. When regulators move simultaneously, they grant too high-powered incentives to the firm, but they extract the firm’s rent when they move sequentially. In chapter 4, we perform a meta-analysis on the effect of regulation and deregulation on consumer prices based on empirical IO papers covering a wide range of industries. We conduct linear regressions on price reductions in percentage. We find a systematic price reduction of at least 20% associated with economic deregulation. Interestingly, we find mild evidence of a higher price effect associated with social deregulation compared to social regulation.

Item Type: Thesis (Doctoral)
Faculty \ School: Faculty of Social Sciences > School of Economics
Depositing User: Chris White
Date Deposited: 26 Oct 2023 13:36
Last Modified: 26 Oct 2023 13:36


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