Dynamic regulation of quality

Q: What is the way to show that pooling over date 1 quality is not possible?

if δ is close enough to zero, then no pooling over date 1 qualities can occur in the optimal contract, even if β is equal to its maximum admissible level β(δ).

Q: what is the condition for e(q) to hold for all?

Hence a sufficient condition for e∗∗(q) ≥ ∆θ to hold for all q ∈ [0, q∗∗+] is thath (1− δ)a b − θ i βB > ∙ λνc 1− ν + βB + c(1 + λ) ¸ ∆θ. (76)Note from (70) that B is independent of θ, θ and ∆θ.

Question

1. What are the contributions mentioned in the paper "Dynamic regulation of quality∗" ?

2. What future works have the authors mentioned in the paper "Dynamic regulation of quality∗" ?

3. What are the key dimensions of quality in the telecommunications sector?

4. What is the condition that makes the new contract incentive feasible?

Accepted Answer

The authors investigate the design of incentives for quality provision in a dynamic regulation setting in which maintenance efforts and quality shocks have durable effects.. The authors further show that for small levels of asymmetric information, the regulator may prefer contracting with a sequence of agents rather than hiring a single agent if high quality shocks are relatively unfrequent, provided all parties can commit to a long-term contract.

Accepted Answer

This paper abstracts from several important features of quality regulation, which should be investigated in future work.. It would be interesting to extend the analysis to the case where consumers care both about the quantity and the quality of output, in order to explore the trade-off between the level and the quality of service, as well as the interaction between the regulated firm ’ s prices and changes in quality.. These important questions are left for future research.. For instance, the owner of a durable good such as a flat or a building might be concerned with the maintenance efforts exerted by the successive renters, while the latter may differ with respect to the kind of use they will make of the property–they may be for instance careful or careless.

Accepted Answer

For instance, the speed and clarity of transmissions are key dimensions of quality in the telecommunications sector, as is the reliability of supply in the energy sector.

Accepted Answer

since (81) is slack, it is preserved in the new contract if ε is close enough to zero, which ensures that the new contract is incentive feasible.

Accepted Answer

The incentive compatibility constraint (60) of the high type agent is binding, as well as the limited liability constraint (63) of the low type agent.

Accepted Answer

To guarantee that the regulator’s objective function is concave, the authors also assume that ψ has a convex derivative over R+.Agents are compensated for their efforts by monetary transfers.

Accepted Answer

Using the linear-quadratic specification of the model, the authors show that pooling over first period quality typically occurs when the future is important relative to the present, that is, when quality depreciates slowly and the discount factor is high.

Accepted Answer

When q0, θ and ∆θ are close enough to zero and λ < 1, there exists a threshold ν∗ ∈ (0, 1) such that ex-ante social welfare is higher in the optimal contract with a sequence of agents than in the optimal contract with a single agent if ν < ν∗.

Accepted Answer

if δ is close enough to zero, then no pooling over date 1 qualities can occur in the optimal contract, even if β is equal to its maximum admissible level β(δ).

Accepted Answer

Hence a sufficient condition for e∗∗(q) ≥ ∆θ to hold for all q ∈ [0, q∗∗+] is thath (1− δ)a b − θ i βB > ∙ λνc 1− ν + βB + c(1 + λ) ¸ ∆θ. (76)Note from (70) that B is independent of θ, θ and ∆θ.

Accepted Answer

This implies that, relative to a static environment, the regulator has an additional incentive to enhance quality, namely to reduce future informational rents.

Accepted Answer

Because of the additional distortion term on the right-hand side of (22), it is not possible in general to rank the quality levels q∗(q) and q∗∗(q) conditional on a low shock to quality.

Accepted Answer

That is, for each i ∈ {∗, ∗∗} and for any q ≥ 0, P i(q, ·) is the law of a random variable that takes the value qi(q) with probability ν, and the value qi(q) with probability 1− ν.

Accepted Answer

Although the complications that usually arise in models of dynamic adverse selection are absent in this model, the lack of commitment still generates a ratchet effect.

Accepted Answer

by continuity, the authors obtain that there may be over-provision of date 1 quality when θ0 = θ relative to the symmetric information benchmark, even if no pooling over date 1 quality actually takes place.

Accepted Answer

This result still holds if, in addition, one modifies their model by imposing their restrictions on utilities: in the absence of a physical intertemporal link, the optimal contract with a sequence of agents is then simply the repetition of the optimal static contract, which can obviously be replicated in a long-term contract with a single agent.

Dynamic regulation of quality

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Most frequently asked questions

1. What are the contributions mentioned in the paper "Dynamic regulation of quality∗" ?

2. What future works have the authors mentioned in the paper "Dynamic regulation of quality∗" ?

3. What are the key dimensions of quality in the telecommunications sector?

4. What is the condition that makes the new contract incentive feasible?

5. What is the incentive compatibility constraint of the high type agent?

6. How do the authors guarantee that the regulator’s objective function is concave?

7. What is the way to show that pooling over first period quality occurs?

8. What is the way to determine the optimal contract with a sequence of agents?

9. What is the way to show that pooling over date 1 quality is not possible?

10. what is the condition for e(q) to hold for all?

11. What does the regulator have an incentive to enhance quality?

12. Why is it not possible to rank the quality levels q(q) and q?

13. What is the law of a random variable that takes the value qi(q)?

14. What is the effect of the lack of commitment?

15. What is the way to show that pooling over date 1 quality is not necessary?

16. What is the way to replicate the optimal contract with a sequence of agents?

Citations

Dynamic Mechanism Design: Incentive Compatibility, Pro…t Maximization and Information Disclosure

How to regulate disruptive innovation : From facts to data

Dynamic Procurement under Uncertainty: Optimal Design and Implications for Incomplete Contracts

Dynamic Procurement under Uncertainty: Optimal Design and Implications for Incomplete Contracts

On-Chain Governance of Decentralized Autonomous Organizations: Blockchain Organization Using Semada

References

Adverse Selection and Renegotiation in Procurement

An efficient dynamic mechanism

Long-Term Contracting with Markovian Consumers

Incentive regulatory policies: the case of public transit systems in France

Regulating Service Quality: A Survey

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