Regulating a firm under adverse selection and moral hazard in uncertain environment
type: Item
instance of: scholarly article
title: Regulating a firm under adverse selection and moral hazard in uncertain environment
zbMATH Open document ID: 1406.91145
DOI: 10.1155/2014/419207
author: Jing Feng
author: Yanfei Lan
author: Ruiqing Zhao
published in: Abstract and Applied Analysis
publication date: 2019-02-14T00:00:00Z
review text: Summary: This paper investigates a problem of how to regulate a firm which has private information about the market capacity, leading to adverse selection, and which can increase the market demand by exerting costly effort, resulting in moral hazard. In such a setting, the regulator offers a regulatory policy to the firm with the objective of maximizing a weighted sum of the consumer surplus and the firm's profit (i.e., the social total surplus). We firstly find that the regulator will set the firm's effort level as zero under observable effort regardless of the market capacity being full or private information; that is, the effort has no impact on the optimal regulatory policy. Interestingly, we also show that, it is necessary for regulator to consider the difference between the effort's impact on the demand and the price's impact on the demand, which may generate different distortion effects about the regulatory policy.
Mathematics Subject Classification ID: 91B24
zbMATH DE Number: 7022355
zbMATH Keywords: firm regulation
zbMATH Keywords: adverse selection
zbMATH Keywords: moral hazard
zbMATH Keywords: uncertain environment
Wikidata QID: Q59037798
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2014/419207
OpenAlex ID: W2095013962
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description: scientific article; zbMATH DE number 7022355