The city of León, Guanajuato, is Mexico’s leather goods capital and a notorious environmental hotspot. Over the past two decades, four high-profile voluntary agreements aimed at controlling pollution from León’s tanneries have yielded few concrete results. To understand why, this paper...

Price caps, while widely touted, are less commonly implemented. Most incentive schemes involve profit sharing and are thus variants of sliding-scale regulation. I show that, relative to price caps, some degree of profit sharing always increases expected welfare. Numerical simulations show that...

This paper compares the performance of two prominent non-Bayesian regulatory mechanisms: Sappington and Sibley's (1988) Incremental Surplus Subsidy (ISS) and Hagerman's (1990) refinement of the Vogelsang-Finsinger (1979) mechanism. The two mechanisms are shown to induce identical, non-zero...

We extend the economic theory of regulation to allow for strategic self-regulation that preempts political action. When political "entry" is costly for consumers, firms can deter it through voluntary restraints. Unlike standard entry models, deterrence is achieved by overinvesting to raise the...

We examine the applicability of price-cap mechanisms to the regulation of gas distribution company rates for gas supply and transportation services. Although distribution companies will continue to be regulated for the foreseeable future, we argue that a hybrid of price and profit regulation of...

In many markets governments set minimum quality standards while some sellers choose to compete on the basis of quality by exceeding them. Such ‘high-quality’ strategies often win public acclaim, especially when ‘environmental friendliness’ is the dimension along which firms are...

Long-term contracts often include most-favored-nation clauses (MFNs), which are nondiscrimination guarantees that obligate a buyer or seller to treat all trading partners symmetrically in pricing decisions. Recent theoretical work has shown that such clauses can facilitate tacit collusion by...