This paper addresses the issue of how regulatory constraints affect firm s investment choices when the firm has an … option to delay investment. The RPI-x rule is compared to a profit sharing rule, which increases the x factor in case profits … go beyond a given level. It is shown that a pure price cap and profit sharing are identical in their impact on investment …

investment of endogenous size. Using a real option approach in continuous time, we show that profit sharing does not affect a … total investment. We also evaluate the reduction in the firm s value due to profit sharing, linking this reduction to the …

This paper addresses the issue of how regulatory constraints affect firm's investment choices when the firm has the … option to delay investment. The RPI-x rule is compared to a profit sharing rule, which increases the x factor in case profits … go beyond a given level. It is shown that these rules are identical in their impact on investment choices, in that the …