The regulatory mechanism proposed by Vogelsang and Finsinger (V-F) will induce the regulated firm to adopt behavior other than myopic profit maximization. Pure waste, inefficient factor utilization, excessive research and development, and overinvestment in demand-increasing expenditures may be...

The optimal regulatory strategy to promote research and development aimed at cost reduction is derived for an environment in which the firm's information about the technology of cost reduction, although initially imperfect, is better than that of the regulator. The manner in which the optimal...

This article examines the optimal strategy for a regulator who seeks to maximize expected consumers' surplus and who faces some uncertainty about the technological capabilities of the firm being regulated. It is shown that the optimal strategy will generally induce the firm to adopt a cost...