Dynamic Natural Monopoly Regulation: Time Inconsistency, Moral Hazard, and Political Environments
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 underinvestment in electricity distribution cap...
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| Veröffentlicht in: | The Journal of political economy 2018-02, Vol.126 (1), p.263-312 |
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| container_title | The Journal of political economy |
| container_volume | 126 |
| creator | Lim, Claire S. H. Yurukoglu, Ali |
| description | 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 underinvestment 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. |
| doi_str_mv | 10.1086/695474 |
| format | Article |
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H. ; Yurukoglu, Ali</creator><creatorcontrib>Lim, Claire S. H. ; Yurukoglu, Ali</creatorcontrib><description>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 underinvestment 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.</description><identifier>ISSN: 0022-3808</identifier><identifier>EISSN: 1537-534X</identifier><identifier>DOI: 10.1086/695474</identifier><language>eng</language><publisher>Chicago: University of Chicago Press</publisher><subject>Capital ; Economic theory ; Electric rates ; Electricity ; Electricity distribution ; Inconsistency ; Investments ; Monopolies ; Moral hazard ; Morality ; Political economy ; Political ideologies ; Power ; Regulation ; Welfare</subject><ispartof>The Journal of political economy, 2018-02, Vol.126 (1), p.263-312</ispartof><rights>2018 by The University of Chicago</rights><rights>2018 by The University of Chicago. 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Using the estimated model, we quantify how conservative regulators thus mitigate welfare losses due to time inconsistency but worsen losses from moral hazard.</description><subject>Capital</subject><subject>Economic theory</subject><subject>Electric rates</subject><subject>Electricity</subject><subject>Electricity distribution</subject><subject>Inconsistency</subject><subject>Investments</subject><subject>Monopolies</subject><subject>Moral hazard</subject><subject>Morality</subject><subject>Political economy</subject><subject>Political ideologies</subject><subject>Power</subject><subject>Regulation</subject><subject>Welfare</subject><issn>0022-3808</issn><issn>1537-534X</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2018</creationdate><recordtype>article</recordtype><sourceid>7TQ</sourceid><sourceid>7UB</sourceid><recordid>eNpF0E1Lw0AQBuBFFIxV_4EQqHiLzn5lN0epn1AVRMFb2E53a0qajbvJof_elEidy1yeeQdeQs4pXFPQ-U1eSKHEAUmo5CqTXHwdkgSAsYxr0MfkJMY1DEOBJ2R6t23MpsL01XR9MHX64hvf-nqbvttVX5uu8s0pOXKmjvbsb0_I58P9x-wpm789Ps9u5xkKzrtMYg5WF3JBZVE4qwAFRQfKMqXdEjkKYZ12HFnuwKBxxWJpGFoYThbUaT4h0zG3Df6nt7Er174PzfCyZMC4oorRnboaFQYfY7CubEO1MWFbUih3BZRjAQO8HGGP3xWalW-DjfE_c88uRraOnQ_7MJZLCZJz_gtLEWIz</recordid><startdate>20180201</startdate><enddate>20180201</enddate><creator>Lim, Claire S. 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H. ; Yurukoglu, Ali</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c433t-5c60e895b1599fe70c41cf07e278fdc3c44ef8f3c26f0acaf9bda2ce095bb1f83</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2018</creationdate><topic>Capital</topic><topic>Economic theory</topic><topic>Electric rates</topic><topic>Electricity</topic><topic>Electricity distribution</topic><topic>Inconsistency</topic><topic>Investments</topic><topic>Monopolies</topic><topic>Moral hazard</topic><topic>Morality</topic><topic>Political economy</topic><topic>Political ideologies</topic><topic>Power</topic><topic>Regulation</topic><topic>Welfare</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Lim, Claire S. 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H.</au><au>Yurukoglu, Ali</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Dynamic Natural Monopoly Regulation: Time Inconsistency, Moral Hazard, and Political Environments</atitle><jtitle>The Journal of political economy</jtitle><date>2018-02-01</date><risdate>2018</risdate><volume>126</volume><issue>1</issue><spage>263</spage><epage>312</epage><pages>263-312</pages><issn>0022-3808</issn><eissn>1537-534X</eissn><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 underinvestment 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.</abstract><cop>Chicago</cop><pub>University of Chicago Press</pub><doi>10.1086/695474</doi><tpages>50</tpages></addata></record> |
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| ispartof | The Journal of political economy, 2018-02, Vol.126 (1), p.263-312 |
| issn | 0022-3808 1537-534X |
| language | eng |
| recordid | cdi_uchicagopress_journals_695474 |
| source | PAIS Index; Worldwide Political Science Abstracts; EBSCOhost Business Source Complete; JSTOR Archive Collection A-Z Listing; University of Chicago Press Journals (Full run) |
| subjects | Capital Economic theory Electric rates Electricity Electricity distribution Inconsistency Investments Monopolies Moral hazard Morality Political economy Political ideologies Power Regulation Welfare |
| title | Dynamic Natural Monopoly Regulation: Time Inconsistency, Moral Hazard, and Political Environments |
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