A Model of Arbitration in Regulation

• Autores: Juan Pablo Montero
• Localización: Documentos de Trabajo ( Instituto de Economía PUC ), ISSN-e 0717-7593, Nº. 267, 2004, 57 págs.
• Idioma: inglés
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• Resumen

  • I study a regulatory process in which both the regulator and the regulated firm propose prices that in case of disagreement are settled through final-offer arbitration - a practice currently used in Chile for setting prices in the water sector. Rather than submitting a single offer, each party simultaneously submit offers for each of the cost units in which the firm is divided. This multiplicity is believed to be responsible for the great divergence between parties' offers observed in practice. I show, however, that reducing the number of offers makes little difference unless parties are required to submit a single offer.