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Economics of Regulation

This course will be held in English


You can find the most recent information to this course here.

 

Course-Description: 02-VWL:MSc-V1-1

 

Rhythm: summer semester

 

Lecturer: Univ.-Prof. Dr. Georg Götz

 

Course Description

This course deals with network industries like electricty, gas and water supply as well as with the telecommunication sector and how to regulate them. A special focus is laid on the consequences of the asymmetric distribution of information among the agents active in these sectors. Here, one might think of product markets characterized by uncertainty about qualities and prices as well as labor markets, insurance markets, or financial markets. These markets are characterized by endogenous information that is generated by some market participants' behavior affecting other market participants' behavior. As a consequence, the market mechanism may be distorted or even fail.

 

Course contents:

  •  Introduction to the Economics of Regulation
  • Cost theory (subadditivity etc.)
  • Pricing in natural monopoly (Ramsey-Boiteux and peak-load)
  • Regulation under asymmetric information with respect to cost and effort
  • Rate of return regulation vs. price-cap regulation
  • Introducing competition in network industries

 

Literature:

The course refers in parts to

The course also builds on two articles by Mark Armstrong and David Sappington:
  • Recent developments in the theory of regulation, published in the Handbook of Industrial Organization (Vol. III), edited by M. Armstrong and R. Porter. This article provides an in depth treatment of the theory of regulation under asymmetric information.
  • Regulation, Competition, and Liberalization. Journal of Economic Literature Vol. XLIV (June 2006), pp. 325–366. This article offers insights into the regulatory practice and discusses if and how effective competition can be created in sectors, which are at least partly natural monopolies.
    Many of the subjects taught can be found in the textbook
  • "K. Viscusi, J. Harrington, J. Vernon, Economics of regulation and antitrust. 4th. ed. MIT Press 2005."
A German text on the traditional theory of regulation is
  • Borrmann, J. und Finsinger, J., Markt und Regulierung. Verlag Vahlen 1999.
  • David Newbery, 1999, Privatization, Restructuring, and Regulation of Network Industries, MIT Press offers an excellent combination of theoretical insights and specific case studies, in particular with respect to the liberalisation process.
A basic introduction to the industrial organization concepts used in our course can be found in
  • Pepall, Richard, and Norman (PRN): Industrial Organization: Contemporary theory and practice, South Western, 3rd edition. 2005.
Additionally, we recommend the introductory and intermediate microeconomics textbook to students who want to refresh or extend their microeconomic knowledge.