Abstract: We extend the Laffont–Tirole regulation model to the case of risk-averse firms. Our main results are: The impact of risk aversion is to shift the optimal contract toward a cost-plus contract. As compared with the risk-neutral case, distortions are greater and informational rents are smaller. For high levels of risk aversion, the optimal contract involves cost ceilings and the less efficient firms are bunched together.
Publication Year: 1998
Publication Date: 1998-11-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 57
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