Speaker:Professor Flavio Menezes, Dean of School of Economics, University of Queensland

Date:Thursday, March 22, 2012.

Time:15:30 p.m.

Location:Juxian Lecture Hall, B423 Zhixin Building, Central Campus

Sponsor:School of Economics

Enquiries:Zhang Xiaoshuai at 138 5419 8300

Abstract:

This paper investigates how price regulation under moral hazard can affect a regulated firm’s cost of capital. We consider stylised versions of the two most typical regulatory frameworks that have been applied over the last decades by regulators: Price Cap and Cost of Service. We show that there is a trade-off between lower operational costs and a higher cost of capital under Price Cap regulation and higher operational costs and lower cost of capital under Cost of Service regulation. As a result, when the extent of moral hazard is not significant, Price Cap regulation generates lower welfare than the Cost of Service regulation.

For further information, please visit:http://www.econ.sdu.edu.cn/advance/