Deregulation

D

01–9

Asia Pacific School

of Economics and Government

WORKING PAPERS

AUSTRALIAN NATIONAL UNIVERSITY

International and Development Economics

eregulation

Rohan Pitchford

Asia Pacific School of Economics and Government

THE AUSTRALIAN NATIONAL UNIVERSITY

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© Rohan Pitchford 2001

Abstract

It is well known in the theoretical literature on deregulation, that any informative signal will be used to give the firm appropriate incentives. This paper presents a model of deregulation that draws on the multi-task model of Holmstrom and Milgrom (1991). Sufficient conditions are derived for deregulation to be optimal despite the existence of a signal that contains information about the firm’s activity. The conditions ensure that there is an adverse response by the firm whenever the regulator tries to use the signal for incentives.

Asia Pacific School of Economics and Government

THE AUSTRALIAN NATIONAL UNIVERSITY

http://apseg.anu.edu.au

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