Incentive Mechanism Design for Public Goods Provision:Price Cap Regulation and Optimal Regulation

摘要

This paper studies the mechanism design that induces firms to provide public goods under two regulatory means: price cap regulation and optimal regulation, respectively. We first outline two models of monopoly regulation with unobservable marginal costs and effort, which can be regard as an optimal problem with dual restrictions. By solving this problem, we get the two optimal regulatory mechanisms to induce the provision of public goods. Further, by comparative statics, the conclusion is drawn that the welfare loss associated with price cap regulation, with respective to optimal regulation, increases more with increase of the expense of public goods.