Seminar: Regulation of firms and markets -cancelled

Course content

e know from microeconomic theory that perfect competition leads to efficient outcomes. Unfortunately, many markets are characterized by market faliures and inefficient outcomes.To improve welfare public authorities often regulate the firms to mitigate market faliure. However, regulation is not perfect and usually the ideal “first best” outcome cannot be achived.

An example is the case of natural monopolies, for example public utilities like electricity transmission, water mains, and railways. Unreguated monopolies will typically charge too high prices and produce to low quantities.

If a regulator forces a monopoly to set its price equal to marginal costs this may result in deficits, which must then be coverd by public fund, but this is costly. Further, if costs (marginal and/or fixed) are not verifiable, firms may have incentives to overstate costs if reimbursed.

Other examples of market faliure that may induce regulation are markets with externalities in production or consumption (e.g., pollution), network industries, and markets with assymmetric information.

In the seminar we will study regulation in different cases and markets. In particular, we will compare regulation used in practice to optimal or predicted regulation in models with realistic assumptions about information asymmetries, commitment, legal restrictions, distributional considerations and the social cost of public funds.



MSc programme in Economics

The seminar is primarily for students at the MSc of Economics

Learning outcome

Papers for the seminar can focus on a regulatory theme or a specific market or sector. In either case, the paper should include a discussion of the applicability and interpretation of  theoretical modeling for regulation in practice.

Possissible themes and applications include:

  • Rate-of-return vs. price-cap regulation, e.g., electricity transmission or water supply

  • Cost-reimbursement vs. fixed-price contracts in public procurement, e.g. construction of public infrastructure

  • Yardstick competition and benchmarking, e.g., electricity transmission or telecommunication

  • Regulation and incentives to invest in capital or R&D,e.g. telecommiunication

  • Regulation of mutiproduct firms

  • Access pricing, e.g., access to “raw copper” or termination of calls in telecommunication

  • Regulaton of quality, e.g., taxi transportation or emmission standards

  • Public service obligations, e.g., public utilities or postal service

  • Public ownership as an alternative to regulated private ownership, e.g., postal service or railway transportation

  • Participants are welcome to suggest other themes or applications..

Planning/start-up meeting, research and writing process of the seminar paper, sessions with presentation of own paper and critical evaluation/feedback to another student´s paper, actively participating in discussions at class.

Before the session a "so-finalized-as-possible"-draft of the paper must be uploaded in Absalon. After the presentations, the student submit an edited version of the paper in the Digital Exam portal as the final exam paper. The aim is that students use the presentation sessions as an opportunity to receive and use the constructive feedback to improve the paper.

Laffont, J-J. and J. Tirole (1993). A Theory of Incentives in Procurement and Regulation. Cambridge, MA: MIT Press.

Journal articles and public reports depending on the topics chosen by participants.


•The student should have a solid knowledge of microeconomic theory and game theory, and it is recommended to have completed Microeconomics III before the seminar.

It will be an advantage to have further competences in strategic modeling, e.g., from having atteded a couse Industrial Organization, Incentives and Organization, or Mechanism Design.

• Planning meeting: September 5th, 2017 10-12
• Extra days of introducing teaching: September 7th and 12th 10-12
• Deadline commitmentpaper: In agreement with the lecturer and not later than 1st of October.
• Deadline of pre-assignment uploadet to Absalon: November 13th.
• Presentations/Workshops: Week 47, dates to be agreed depending on the number of participants.

7,5 ECTS
Type of assessment
Written examination
- a seminar paper in English that meets the formal requirements for written papers stated in the curriculum and at KUNet for seminars.
All aids allowed
Marking scale
7-point grading scale
Censorship form
External censorship
Criteria for exam assessment

The student must in a satisfactory way demonstrate that he/she has mastered the learning outcome of the course and the objectives stated in the Curriculum.

  • Category
  • Hours
  • Seminar
  • 20
  • Project work
  • 186
  • English
  • 206