This paper proposes a generalization of Shleifer's (RAND J Econ 16:319-327, 1985) model of yardstick competition to a dynamic framework. In a differential game setting, we show that the yardstick mechanism effectively replicates the first-best solution if players adopt open-loop behaviour rules and are symmetric at the initial time; in the absence of initial symmetry, the social efficiency is reached only in the asymptotic steady state. On the contrary, if players adopt Markovian behaviour rules, then the yardstick pricing rule cannot achieve the first-best solution along the equilibrium path of any Markov Perfect Nash Equilibrium.

(2022). On the dynamic optimality of yardstick regulation [journal article - articolo]. In ANNALS OF OPERATIONS RESEARCH. Retrieved from https://hdl.handle.net/10446/234452

On the dynamic optimality of yardstick regulation

Bisceglia, Michele;
2022-01-01

Abstract

This paper proposes a generalization of Shleifer's (RAND J Econ 16:319-327, 1985) model of yardstick competition to a dynamic framework. In a differential game setting, we show that the yardstick mechanism effectively replicates the first-best solution if players adopt open-loop behaviour rules and are symmetric at the initial time; in the absence of initial symmetry, the social efficiency is reached only in the asymptotic steady state. On the contrary, if players adopt Markovian behaviour rules, then the yardstick pricing rule cannot achieve the first-best solution along the equilibrium path of any Markov Perfect Nash Equilibrium.
articolo
Bisceglia, Michele; Cellini, Roberto; Grilli, Luca
(2022). On the dynamic optimality of yardstick regulation [journal article - articolo]. In ANNALS OF OPERATIONS RESEARCH. Retrieved from https://hdl.handle.net/10446/234452
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10446/234452
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