Monday, October 15, 2007

Roger Myerson, Nobel Laureate

My favorite contract theory paper discussed on MR blog:

Roger Myerson, Nobel Laureate: "Here is a very important paper, with David Baron, on how to regulate a monopolist with unknown costs.  Strict marginal cost pricing is no longer possible.  Under some assumptions, allow the monopolist to charge a relatively high price, but design penalties to elicit an honest reporting of costs.  The key point of course is that monopolists won't always report their costs truthfully.  This is one of the most important papers in regulatory economics in the last thirty years and it has helped disillusion many economists with a narrow ideal of marginal cost pricing."

(Via Marginal Revolution.)


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