American Politics & Public Policy Workshop: Claire Lim, “Dynamic Natural Monopoly Regulation: Time Inconsistency, Asymmetric Information, and Political Environments”

“Dynamic Natural Monopoly Regulation: Time Inconsistency, Asymmetric Information, and Political Environments”

Speaker: Claire Lim, Assistant Professor of Economics at Cornell University, and CSDP Fellow at Princeton University

Abstract: This paper quantitatively assesses time inconsistency, asymmetric information, and political ideology in monopoly regulation of electricity distribution companies. Empirically, we estimate that (1) there is under-investment in electricity distribution capital to reduce power outages, (2) more conservative political environments have higher regulated returns, and (3) more conservative political environments have more electricity lost in distribution. We explain these empirical results with an estimated dynamic game model of utility regulation featuring investment and asymmetric information. We quantify the value of regulatory commitment in inducing more investment. Conservative regulators improve welfare losses due to time inconsistency, but worsen losses from asymmetric information.  Link to Paper

Bio: Claire S.H. Lim is Assistant Professor of Economics at Cornell University and CSDP Fellow at Princeton University. Her fields of interest are political economy, law and economics, and industrial organization. Prior to joining the faculty at Cornell, Claire was Assistant Professor at the Graduate School of Business of Stanford University. She received her PhD in Economics from the University of Pennsylvania. Her primary research interests lie in quantitative analyses of individual public officials’ preferences, incentives, and behavior in U.S. state governments.