Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/252109 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9592
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We consider the regulation of a monopoly facing consumers that may evade payments, an important issue in public utilities. To maximize total surplus, the regulator sets the price and socially costly transfers, ensuring that the monopoly breaks-even. With costly effort, the firm can deter evasion. Under unit demand and fixed quality, price is independent of marginal cost, but increasing in the marginal cost of public funds. When quality is endogenous, we find sufficient conditions that imply a non-monotonic relation between price and marginal cost of public funds. We extend the model to consider non-unit demand and moral hazard.
Subjects: 
regulation
natural monopoly
evasion
marginal cost of public funds
JEL: 
D42
H20
L43
L51
Document Type: 
Working Paper
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