The Japanese regulatory authority has introduced a new hybrid regulation that combines a fixed-price contract with ex ante yardstick inspection for local (public utility) gas distribution. The latter compares a firm’s reported costs with those of ‘similar’ firms, and penalizes high-cost firms. We infer the effect of yardstick on information revelation by comparing the actual welfare level with the hypothetical full-information welfare level. Our results suggest that only the very first inspection was effective in reducing firms’ incentive to report higher costs.
Review of Industrial Organization – Springer Journals
Published: Jan 4, 2012
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