Select Issues in Applied Regulatory Theory
Date
2015-09-28
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Abstract
This dissertation comprises three chapters covering two topics in the area of applied regulatory theory. The first topic relates to the behavior of a firm subject to rate of return regulation while the second relates to bargaining outcomes in a theoretical model which can be applied to a negotiated settlements setting.
In chapter 2 I present an empirical exercise showing evidence of a relationship between the shape of the yield curve and the composition of firms' capital structure with respect to durability. The results from chapter 2 are not specific to regulated industries; however, I use these results to inform a theoretical model of firm behavior, specific to firms subject to rate of return regulation. This model is developed in chapter 3.
The modeled firm has access to multiple types of capital which are substitutes (imperfect or perfect) in production. These capital inputs are differentiated based on durability and heterogeneous marginal effects on the firm's total cost of capital. The results indicate that a regulated firm (relative to an unregulated firm) will over- or under-invest in specific assets depending on their durability and the size of the assets' marginal effects on the cost of capital relative to the regulated rate of return.
In chapter 4 I present a bilateral bargaining model constructed to investigate the potential realization and distribution of bargaining quasi-rents. The results indicate that the realization of any quasi-rents requires the first mover have a sufficiently low proposal cost and that such rents are always captured by the first mover. Unlike most Rubinstein (1982) style bargaining games, the realized equilibrium may not be efficient in this game. As with the results of chapter 2, the results in chapter 4 are not constrained in application to regulated industries but do have specific relevance for the emergence of negotiated settlements wherein regulators facilitate bilateral bargaining as an alternative to traditional prescriptive regulation.
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Economics--Finance, Economics--Theory
Citation
Fellows, G. (2015). Select Issues in Applied Regulatory Theory (Doctoral thesis, University of Calgary, Calgary, Canada). Retrieved from https://prism.ucalgary.ca. doi:10.11575/PRISM/27743