Jérôme Pouyet

Public and Private Investments in Regulated Network Industries: Coordination and Competition Issues

This paper analyzes the relationship between a national regulator, an incumbent and a local government in a context where investment in a new network has to be undertaken. In the light of the recent debates on the competition between private firms and local governments, we analyze the limits to be put on the local public intervention in these markets. We show that banning local government intervention can be welfare-enhancing either in the presence inter-districts externality or with asymmetric information or in case of conflicting objectives between the regulator and local governments.

The Public Management of Environmental Risk: Separating Ex Ante and Ex Post Monitors

When firms undertake activities which are environmentally risky, the divergence between social and private incentives to exert safety care requires public intervention. This control occurs both through ex ante regulation and ex post legal investigation. We delineate the respective scopes of those two kinds of monitoring when regulators and judges may not be benevolent. Separation between the ex ante and the ex post monitors of the firm helps to prevent capture. The likelihood of both ex ante and ex post inspections is higher under separation than under integration. This provides a rationale for the widespread institutional trend that has led to the separation of ex ante regulation from ex post prosecution. The robustness of this result is investigated in various extensions. Only when collusion is self-enforcing might it be possible that integration dominates separation.

Pollution Permits, Imperfect Competition and Abatement Technologies

Under imperfect competition, the effect of a cap-and-trade system on indus- try profits depends on the type of abatement technology that is used by firms: industries that use process-integrated technologies are more affected than those using end-of-pipe abatement technologies. The interaction between environmental policy and the evolution of the market structure is then studied. In particular, a reserve of pollution permits for new entrants is justified when the industry uses a process-integrated abatement technology, while a system with a preemption right may be justified in the case of end-of-pipe abatement technology.

The Dilemma of Tax Competition: How (not) to Attract (Inefficient) Firms?

We consider a tax competition game between asymmetrically un-informed governments. Two governments simultaneously propose tax arrangements to attract a multinational firm (MNF) which has an ex-ante preference to operate in both countries, and governments anticipate that once the MNF accepts their offer, each host will know the marginal cost of local production, but not the marginal cost in the other country. We show that when the multinational prefers to operate in both countries or not operate at all, then the tax competition game features two equilibria. In one equilibrium, efficient MNFs are attracted in the two countries, while in the other equilibrium, inefficient MNFs are attracted. The equilibrium in which only efficient firms are attracted may occur as the unique outcome if the MNFs can ultimately decide to settle in one country only. Our results suggest that, the existence of (small) countries who are aggressive in attracting MNFs by offering substantial tax advantages allows competing governments to keep inefficient firms away from their territories.

An Offer You Can't Refuse: Early Contracting with Endogenous Threat

We analyze early contracting when a seller has private information on the future gains from trade and the buyer can bypass. Despite ex-post trade occurring under complete information and being efficient, early negotiation with an informed seller allows the uninformed buyer to improve her bargaining position. We show that the buyer can divide sellers types so that bypass becomes a credible threat. While some sellers accept because they gain more than by trading ex-post, others accept only because they fear that rejection would reveal too much information. Equilibrium payoffs are characterized and are shown to have a close connection with ratifiable equilibrium payoffs.

Weak Enforcement of Environmental Policies: A Tale of Limited Commitment and Limited Fines

When a firm undertakes activities which are risky for the environment, the conflict between social and private incentives to exercise safety care requires imposing fines in case a damage occurs. Introducing asymmetric information on the firms wealth, we show that the fines and probabilities of investigation are systematically too low compared to their optimal level under complete information. This effect is exacerbated when the public agency in charge can no longer commit to an investigation strategy. Compounding asymmetric information with a government failure provides a possible explanation of the significant trend in practice towards a weak enforcement of environmental policies.

Tariffazione dell'accesso a reti ferroviarie interconnesse

Directive 91/440 prescribes the vertical separation of infrastructure management from transport service provision in the railway sector. The application of the Directive has entailed pricing systems which vary significantly across countries. Directive 2001/14 states that the heterogeneity of tarification systems can have an adverse impact on international traffic. This paper analyzes the strategic choice of an access pricing system by the railroad infrastructure managers of two bordering countries. Each manager maximizes welfare in his country, while ensuring the financial viability of the national railway network. Infrastructures are used by transport operators to provide national and international services. We consider two basic access pricing systems, which lead to charges that differ both in level and in strategic nature. The incentives to the adoption of a particular access pricing system depends on the type of strategic interaction between the infrastructure managers, the fixed costs of the network and the characteristics of transport demand.

Drugs, Showrooms and Financial Products: Competition and Regulation When Sellers Provide Expert Advice

We consider a market in which sellers can exert an information-gathering effort to advise buyers about which of two goods best fits their needs. Sellers may steer buyers towards the higher margin good. We show that for sellers to collect and reveal information, profits on both goods must be sufficiently close to each other, i.e., lie within an implementability cone, which competition or regulation may ensure. Instruments to do so vary with the context. Controlling market power while improving the quality of advice is more difficult when sellers have private information on the profitability of the goods.

Competition, Incomplete Discrimination and Versioning

Two producers offer differentiated goods to a representative consumer. The buyer has distinct marginal valuations for the quality of the products. Each producer perfectly knows the consumers taste for its own product, but remains uninformed about its taste for the rivals product. When each product cannot be purchased in isolation of the other one, a phenomenon of endogenous preferences arises since a firms offer to the consumer depends on the information unknown by the rival firm. Multiple equilibria emerge and the consumers rent increases with his valuation for one product and decreases with the valuation for the other product. This provides some foundations for the phenomenon of versioning which has been observed in some digital goods markets. By contrast, when each product can be purchased in isolation of the other one, at the unique equilibrium consumers with larger valuations for a product earn higher rents. The analysis is undertaken under two alternative pricing policies: in the partially-discriminatory case, producers make use of the known information only; in the fully-discriminatory case, each producer offers second-degree price discriminates the consumer according to the unknown information. We show that, sometimes, firms prefer partial to full discrimination to soften competition.