Modernregulationoffirmsindevelopingcountries Jellal,Mohamed MunichPersonalRePEcArchive

Munich Personal RePEc Archive

Modern regulation of firms in developing countries

Jellal, Mohamed

8 July 2014

Online at https://mpra.ub.uni-muenchen.de/57207/

MPRA Paper No. 57207, posted 09 Jul 2014 21:27 UTC

1 On the role of product market power on unionization, see among others Layard er alii (1991).

2 Detailed results ara available at www.worldbank.org; see also Upham (1995).

3 In that case, the super monopoly price is a punishment less severe than the shut-down solution, since the regulated price still generates some consumers’ surplus ( Baron and Myerson, 1982).

L

   L L Q 

  ^L

Q 



   L L Q 



 

  ^{ , }



    

4 Following Laffont and Tirole (1986), one can extend our analysis by considering a general production function of the form

    ^, f ^{'  0}

e f

Q L



with e a level of effort which decreases the marginal costs which is



, but leads to similar qualitative results.

) ( 

F f (  )

) (  F

    ^ _ ^{  0}

 







 f F d

d

) (  F

  ^{T L}

V ,

  ^{T L}

V ,

T

  T L T wL V ,   wL

5 For instance, the monotone hazard rate is satisfied for uniform, normal, logistic, exponential or chi-squared distributions.

w

w w

 ^{w L} 

U ,

 ^{w w}  ^L

U  

_o

6 This utility is a special case of the Stone-Geary specification

^{U }  ^{w  w}

_o

 

^1

^{L  L}

_o



^2,where



₁and



2indicate the relative importance of wage and employment to the union, and

w

_oand

L

_oare minimum acceptable levels of wage and employment (see MaCurdy and Pencavel, 1986). The rent utility function holds when



₁⁼



₂^{=1/2 and}

L

_o=0.

w

o

 

P ^P   ^Q

Q

  ⁰

' Q 

P ^S   ^Q

  ^{Q }

^Q

_ ^P   ^{Q d Q}

S

0

~

~ S '   Q  0 S ''   Q  0

    ^{Q P Q Q}

S  T

 1  ^  ^T

 0



W

   ^Q  ^{T V U}

S

W   1     

1

0    U

   ^Q  ^{T V U}

S

W   1     

  T ^, L  ⁰ V

  ^Q

S '



 

Q

T



 

7 In this paper, we consider a control mechanism based on the output because the input is not supposed observed.

Further , Maskin ans Riley (1984) have shown the superiority of the relation based on the output level for a monopolist firm.

T

  ^w

N

   ^{w  V  V}

_o

 

^1

^{U  U}

_o



^12

N

V

o

U

_o



T

L w V

w

_o





 

 1

*

       

L w V

L w w wL T U

U V V

w

_{o o o o}















      





^{  }

1

Max

arg

^{1 1 1}

w

*

V

  ^{T , L  T  wL ,}  ^{ w}

^*

_{ T} ^{ 0} 

V

 ⁰ 



^*

 

w 

 0

  U w

w

*

   ^{T w Q} 

V    

_o



    ^{T w Q} 

U   1   

_o



  ^{T L T w L}

V ,  

^*

w

^*

   ^{T L T w L} 

V ,   

_o

 

 L L Q 

   ^{T w Q} 

V    

_o



 ^{w w}  ^L

U 

^*



_o

 

 ^V 

U  1  ^U      1    ^T  ^w

o

 ^Q 

  ⁰

'  

V

   V



 

M

   Q      T 

M  ,



 

  ^

Q

  ^

T



 

   Q      T 

M  , ^V   ^{ ~ , }



 



 ^~ 

  ^{ ~ , }

V

  ^{ ~ ,   }  ^T   ^{ ~  w  Q}   ^{ ~}  ^{,   ~ ,   }

V

_o

 ^{ , } 

V

 ^{ , }  ^{ V}   ^{ ~ ,    ~ ,   }

V

           ~ ,   

0 ,

V V

   ¹  ⁾

( W S Q T V U

E        ^F  

8 Let us recall that the reservation payoff of the monopolistic firm i s set to zero.



 

   Q      T 

M  ,

   Q      T 

M  ,

  ^{  } 

^

  ^{   }



dx x Q w

V

_o

    0     '

Q

  ^

V

       











 







~

~

~ w Q

T Max

V

_o

  

V 





 

    ⁰

'     w Q  

V

_o

  ^'   ⁰

''     w Q  

V

_o

  ^{    '}   ^{  0  '}   ^{  0 ,  }

'' w Q Q

V

_o

  ^{  w Q}   ^

V '  

_o

^V   ^{  0}

  ^  ^ 

^

   ^  



dx x Q w

V

_o



 



 

  ^{ w  Q}   ^

T 

_o

9 The less efficient type of monopoly obtains no rent from the regulatory contract.

   V



 



 



 

    0 ,     '

Q



 

  ^

T

  ^

Q M     Q      , T 

) (W E

 

 ^{Q }   ^      ^{T  V   U}     ^{ dF }

S W

E ( )   (  1    )



  ^

T

10 From the definition of the rent value, it is an increasing function of the produced ouput

Q  .

.

  ^{ }  ^T   ^{ w  Q}   ^ 

V  

_o

  ^

V

  ^

T

  ^{  }   ^{ } 

^

  ^{   }



dx x Q w Q

w

T

_{o o}

     



 

 ^V

U  1 



 

   ^{   }  

^

  ^{   }



1 w Q x dx

U

_o

  ^

T

  ^

V ^U   ^

 

                 

^

  



dF dx x Q w

Q w Q

S W

E ( ) ^  ( ^ 1 ^

_o

^

_o

1 ^{   }  )



 

                    ^{ }

 











 Q dF

f w F

Q w Q

S

Max

_{o o}

Q

( 1 1 1 )

(.)

      



  ^{  0 ,    }

' Q

 

             

 









 f

w F w

Q

P  1 

_o



_o

 1  1 

  ^{  }   ^{ }

^

   ^{   }



dx x Q w Q

w

T

_{o o}

  ^{  0 ,    }

' Q

  ^{Q } _

^Q

^P   ^{Q d Q}

S

0

~

~

  ^{( )  0}



 E W Q 

  ^{  0 ,    }

' Q

 

                 

 













 f

w F w

Q P

Q   

_o



_o

  

 , 1 1 1

     





 





  Q

sign

Q ,

'

 

  _











 , Q         

  ⁾

( 1

1

1 



 





 f

F d w d

w

_o



_o

  





     

, 0

' 





 





  ^Q

Q

   ,     Q

 1    w

o

  

      

 



 f

w

_o

 1  1  F

   ,     Q

11 When social planner chooses to reduce the level of the output, a monopolist firm of type



finds it less profitable to mimic the type

 ~  

.

 ^{.  }   ^{1 }       ^{ 0}







 

 f

w F P

o



12 When the parameter



is such that

  1

, we note that the regulator is indifferent with respect to the distribution of the rent between the firm and the labot union.





      _{   }



 

  ^  _ ^{ }

 









, 0

x dx w Q

dx x Q w d V

d

o o

        _{  }



 





  ^  _ ^{ }

 









1 Q x , dx

w dx

x Q w d U

d

o o



 )

 

)

(   

 

 Q   S  Q      1     T

^*



S

_n

  

 

           

 ^ _



 

 



 



^





 

 



  ^dx

x Q w Q

Q S Q

S

_{n o}

,

1 1

'

 

 Q   P  Q    

S ' 

 

              

 ^ _



 

 





 



^





 





 





  ^dx

x Q Q

f Q F

S

_n

,

1 1

1