Abstract This paper focuses on the effects of the regulatory shift from cost-of-service regulation to price-cap regulation on service quality, which we classify into two categories: investment-related and effort-related. In the case of investment-related service quality, the regulatory shift lowers both price and service quality. The total social surplus is higher under a hybrid form of price-cap and cost-of-service regulation than under pure price-cap regulation. On the contrary, in the case of effort-related service quality, the regulatory shift to price-cap regulation lowers price and upgrades service quality, and thus increases the total social surplus. J. Japan. Int. Econ. , March 2002, 16 (1) pp. 135–146. Center for Spatial Information Science, University of Tokyo, 7-3-1, Hongo, Bunkyo, Tokyo 113-0033, Japan. © 2002 Elsevier Science (USA). Journal of Economic Literature Classification Numbers: L51, L97.
[1]
Michael A. Einhorn.
Price caps and incentive regulation in telecommunications
,
1991
.
[2]
D. E. Sappington,et al.
Designing Incentive Regulation for the Telecommunications Industry
,
1999
.
[3]
John Vickers,et al.
Privatization: An Economic Analysis
,
1988
.
[4]
A. Spence.
Monopoly, Quality, and Regulation
,
1975
.
[5]
Tracy R. Lewis,et al.
Incentives for Monitoring Quality
,
1991
.
[6]
Performance indicators for public telecommunications operators: Will they improve performance?
,
1991
.
[7]
The Regulation of Product Quality in the Public Utilities and the Citizen's Charter
,
1992
.