Dynamic Natural Monopoly Regulation: Time Inconsistency, Moral Hazard, and Political Environments
10 March, 2017 00:00 hrs
Abstract
This paper quantitatively assesses time inconsistency, moral hazard, and political ideology in monopoly regulation of electricity distribution. We specify and estimate a dynamic model of utility regulation featuring investment and moral hazard. We find under-investment in electricity distribution capital aiming to reduce power outages, and use the estimated model to quantify the value of regulatory commitment in inducing greater investment. Furthermore, more conservative political environments grant higher regulated returns, but have higher rates of electricity loss. Using the estimated model, we quantify how conservative regulators thus mitigate welfare losses due to time inconsistency, but worsen losses from moral hazard.
Location:
Sala de Consejo, Beauchef 851, Floor 4 - Departamento de Ingeniería Industrial, U. de Chile.
Speaker:
Claire Lim
MIPP Chile 2024