A Service of zbw The ratchet effect in a two lag setting and the mitigating influence of yardstick competition The ratchet effect in a two lag setting and the mitigating influence of yardstick competition The ratchet effect in a two lag setting and the mi

Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Revenue cap regulation could bear the ratchet effect: cost minimization need not to be optimal for the operator who anticipates that his revenue cap will become adjusted according to his cost performance. The regulator could extract all the rent by lowering an operator's revenue cap to the level of costs he revealed to be possible for him to reach. Terms of use: Documents in The ratchet effect could be mitigated by yardstick competition at which the level of revenues that is allowed to one operator is tied to the performance of others that are comparable to him. One will only be allowed to accumulate revenues that recover the least cost level that has been adopted within the group of comparable decision makers. In a setting of two sequential regulatory lags, this paper examines the occurence of the ratchet effect and the mitigating influence that yardstick competition has on it. Keywords: ratchet effect, yardstick competition, regulation JEL classification: L51 * Faculty of Business Administration and Economics, University of Augsburg, D-86135 Augsburg, Germany, e-mail: cord.brockmann@wiwi.uni-augsburg.de I thank P. Welzel, M. Higl, M. Bandulet, and the members of the department for the management of regulatory issues at Thüga AG, Munich, for helpful discussion and comments