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2006•Journal of Shaanxi University of Science & TechnologyRequires access

REVIEW OF THE INCENTIVE THEORY OF REGULATION

Lei Hua

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Abstract

In the process of changing to market economy, traditional rate-of-return regulation has been the barriers to develop our public utilities. The paper discusses the incentive regulation theory which has been wildly used in developed countries, and points out that information asymmetry in government and firms is the essential reason due to it. Principal-agent theory is the way to the government regulation, by providing firms the motives to enhance their efficient and the pressures of competence, the problem of low efficiency will be solved.

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What this paper is about

In the process of changing to market economy, traditional rate-of-return regulation has been the barriers to develop our public utilities. The paper discusses the incentive regulation theory which has been wildly used in developed countries, and points out that information asymmetry in government and firms is the essential reason due to it. Principal-agent theory is the way to the government regulation, by providing firms the motives to enhance their efficient and the pressures of competence, the problem of low efficiency will be solved.

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Available abstract

In the process of changing to market economy, traditional rate-of-return regulation has been the barriers to develop our public utilities. The paper discusses the incentive regulation theory which has been wildly used in developed countries, and points out that information asymmetry in government and firms is the essential reason due to it. Principal-agent theory is the way to the government regulation, by providing firms the motives to enhance their efficient and the pressures of competence, the problem of low efficiency will be solved.

Key concepts: Incentive, Information asymmetry, Competence (human resources), Government regulation, Government (linguistics), Industrial organization, Public economics, Business

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