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Social Preferences and Price Cap Regulation

Author

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  • Alberto Iozzi
  • Jonathan A. Poritz
  • Edilio Valentini
Abstract
This paper analyzes the allocative properties of price cap regulation under very general hypotheses on the nature of society’s preferences. We propose a generalized price cap that ensures the convergence to optimal (second best) prices in the long‐run equilibrium for virtually any form of the welfare function. Hence, the result of the convergence to Ramsey prices of Laspeyres‐type price cap regulation is a particular instance of our more general result. We also provide an explicit and relatively easy to calculate and implement generalized price cap formula for distributionally weighted utilitarian welfare functions, as suggested by Feldstein (1972a).

Suggested Citation

  • Alberto Iozzi & Jonathan A. Poritz & Edilio Valentini, 2002. "Social Preferences and Price Cap Regulation," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(1), pages 95-114, January.
    • Handle: RePEc:bla:jpbect:v:4:y:2002:i:1:p:95-114
    DOI: 10.1111/1467-9779.00090
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    Citations

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    Cited by:

    1. Kevin Currier, 2009. "Price cap regulation of a dominant firm facing competition," Journal of Economics, Springer, vol. 98(3), pages 221-233, December.
    2. Valentini, Edilio, 2015. "Indirect taxation, public pricing and price cap regulation: A synthesis," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-39.
    3. Gianni De Fraja & Alberto Iozzi, 2008. "The Quest for Quality: A Quality Adjusted Dynamic Regulatory Mechanism," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(4), pages 1011-1040, December.
    4. Sarkar, Sudipto, 2015. "Price limits and corporate investment: The consumers' perspective," Economic Modelling, Elsevier, vol. 50(C), pages 168-178.
    5. Alberto Iozzi & Marco Fioramanti, 2004. "Strategic Choice of the Price Structure and Entry Deterrence Under Price Cap Regulation," Bulletin of Economic Research, Wiley Blackwell, vol. 56(4), pages 333-352, October.
    6. Angela S. Bergantino & Etienne Billette De Villemeur & Annalisa Vinella, 2011. "Partial Regulation in Vertically Differentiated Industries," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(2), pages 255-287, April.
    7. Cesi Berardino & Iozzi Alberto & Valentini Edilio, 2012. "Regulating Unverifiable Quality by Fixed-Price Contracts," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-39, September.
    8. Alberto Iozzi, 2001. "Strategic pricing and entry deterrence under price-cap regulation," Journal of Economics, Springer, vol. 74(3), pages 283-300, October.
    9. Valentini, Edilio, 2006. "Uncovering regulator's (implicit) social welfare weights under price cap regulation," Economics Letters, Elsevier, vol. 90(1), pages 1-5, January.
    10. Antonio Estache & L. Wren-Lewis, 2008. "Towards a Theory of Regulation for Developing Countries: Following Laffont's Lead," Working Papers ECARES 2008_018, ULB -- Universite Libre de Bruxelles.

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