Abstract
This paper focuses on the effects of the regulatory shift from cost-of-service regulation to price-cap regulation on service quality, which we classify into two categories: investment-related and effort-related. In the case of investment-related service quality, the regulatory shift lowers both price and service quality. The total social surplus is higher under a hybrid form of price-cap and cost-of-service regulation than under pure price-cap regulation. On the contrary, in the case of effort-related service quality, the regulatory shift to price-cap regulation lowers price and upgrades service quality, and thus increases the total social surplus. J. Japan. Int. Econ., March 2002, 16(1) pp. 135–146. Center for Spatial Information Science, University of Tokyo, 7-3-1, Hongo, Bunkyo, Tokyo 113-0033, Japan. © 2002 Elsevier Science (USA).Journal of Economic Literature Classification Numbers: L51, L97.
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