Incentive Regulation and Market Efficiency: Balancing Investment, Service Quality, and Consumer Welfare
Xinyi Fu
University of Essex
DOI: https://doi.org/10.59429/bam.v7i1.9571
Keywords: Incentive Regulation; Market Efficiency; Investment Incentives; Service Quality Regulation; Asymmetric Information
Abstract
Effective regulation of industries necessitates a careful equilibrium between fostering investment, ensuring service quality, and maintaining consumer affordability. This study critically examines diverse regulatory frameworks, with a primary focus on incentive-based regulation, a widely adopted approach across various sectors and jurisdictions. Through a comprehensive review of the literature, the paper evaluates price control mechanisms, investment incentives, and the informational asymmetries that challenge regulatory effectiveness. While price cap regulation enhances efficiency and affordability, it may inadvertently compromise service quality. Additionally, the study explores the role of investment regulations in sustaining long-term infrastructure development while mitigating disincentives that deter firm participation. By synthesizing existing research, this paper provides insights into optimal regulatory strategies that encourage firms to enhance service quality and invest efficiently. The findings highlight the necessity of adaptive, data-driven regulatory frameworks capable of addressing the complexities of evolving market dynamics and economic conditions.
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