When is knowledge acquisition socially beneficial in the Laffont–Tirole regulatory framework?

dc.contributor.authorZimper, Alexander
dc.contributor.authorMolefinyane, Mpoifeng Richard
dc.contributor.emailalexander.zimper@up.ac.zaen_ZA
dc.date.accessioned2022-02-07T11:24:08Z
dc.date.issued2022
dc.description.abstractThe Laffont–Tirole regulator observes the accounting costs of a firm but she can neither observe its true cost-type nor its chosen effort level. This paper considers a Laffont–Tirole regulator who could employ an expert to obtain better, albeit not perfect, knowledge about the firm’s true cost type. Both the welfare gains through superior allocations from better knowledge but also the knowledge acquisition costs increase in the ‘marginal deadweight losses from taxes’ parameter λ ≥ 0. We derive a closed-form expression of the overall welfare benefits from knowledge acquisition as a function in λ. We characterize parameter conditions such that knowledge acquisition could improve social welfare in dependence on the value of λ. For this case we show that knowledge acquisition strictly increases social welfare if and only if λ falls into the interval (λ*, ∞) whereby we present a sharp characterization of the critical threshold-value λ* ≥ 0. In other words, information acquisition through a regulator only increases welfare for economies with comparatively high deadweight losses from taxation whereas welfare is decreased whenever these deadweight losses are low.en_ZA
dc.description.departmentEconomicsen_ZA
dc.description.embargo2022-03-22
dc.description.librarianam2022en_ZA
dc.description.urihttp://www.degruyter.com/view/j/bejte?rskey=Z6br7y&result=336&q=en_ZA
dc.identifier.citationZimper, A & Molefinyane, M 2022, 'When is knowledge acquisition socially beneficial in the Laffont–Tirole regulatory framework?', B.E. Journal of Theoretical Economics, vol. 22, no. 1, pp. 233-266.en_ZA
dc.identifier.issn1555-0478 (online)
dc.identifier.other10.1515/bejte-2020-0069
dc.identifier.urihttp://hdl.handle.net/2263/83660
dc.language.isoenen_ZA
dc.publisherDe Gruyteren_ZA
dc.rights© Walter de Gruyter GmbH 2021en_ZA
dc.subjectRegulationen_ZA
dc.subjectAsymmetric informationen_ZA
dc.subjectKnowledgeen_ZA
dc.subjectLaffont–Tirole regulatoren_ZA
dc.subjectCostsen_ZA
dc.subjectKnowledge acquisitionen_ZA
dc.titleWhen is knowledge acquisition socially beneficial in the Laffont–Tirole regulatory framework?en_ZA
dc.typeArticleen_ZA

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