The Effects of Regulatory Reform on Quality

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.