On The Incentive Regulation Of Natural Monopoly Industries In China

With the progress of modern technology and economy, the developed country started to reform the regulatory system in 1970's.In virtue of traditional regulation can't give strong incentive to the firms, incentive regulation reform of natural monopoly industry was brought forward. In our country, the reform of regulatory system started in 1980's. The major destination was to increase the efficiency of state owned firms in natural industry. During the period incentive regulatory mechanism was introduced and applied into practice. The dissertation studied the principle and application of incentive regulation system.The origin of thought of incentive regulation is modern mechanism design theory. Traditional mechanism design theory always confronts the problem of incentive consistent because of information structure limits. Modern mechanism theory revised the perfect information hypothesis and constructs an incentive analysis frame in order to solve the problems of adverse selection and moral hazards. Incentive regulation of natural monopoly industry was an application research.First, the dissertation studied the confine of natural monopoly industry. In the view of modern industry economics, natural monopoly is in relation to the economy of scale and the economy of scope, which are combined by the concept of cost sub-additive. In the latest years, the research of natural monopoly has paid more attention to network industry and attributed the property of natural monopoly to the economy of network caused by the external effect of network. However the essence of economy of network is the economy of demand scale, and so it is not beyond the analytic frame of economy of scale. The dissertation bring forward the viewpoint that structural network is the "natural" causation of natural monopoly different from other form of monopoly. The rarity of systemic network and the property of high sunk-cost inevitably lead to destructive competition. Natural monopoly is basically caused by the property right of structural network and unsustainable competition led by high sunk-cost.Second, the dissertation studied the causation of regulation of natural monopoly. Natural monopoly is typical market failure, and so the government should regulate the natural monopoly industry in order to protect the public interests. The essence of regulation is the limits on the firms' property right. The embodiment of public interests should be in two aspects:first, regulation is in order to protect the interests of consumers; second, regulation cannot distort the efficiency of monopoly firms. In other words, regulation should give strong incentives to stimulate the monopoly firms to improve operational efficiency and economize production cost as same important as protect the interests of consumers. So the dissertation emphasizes the significance and necessity of incentive regulation reform in china.Price regulation is the most important research of natural monopoly regulation. The purpose of price regulation is to protect the interests of consumers through limiting firms'property right of pricing. But traditional method of price regulation only emphasizes the aspect of protecting consumers'interests and cannot give firms strong incentives to improve efficiency. So the price-cap regulation, which is the method of incentive price regulation, has been extensively applied in communication and electricity industry since 1980s'. The essential hypothesis of incentive price regulation is asymmetry of information. But the more important problem is that firms are always lack of information of technique and cost, which will influence firms' efficiency in long term. In order to give firms strong incentive to acquire more technique and market information, regulator should introduce revenue sharing mechanism into pure price-cap regulation. The dissertation proves that price-cap regulation with revenue sharing mechanism can give firms more incentive to acquire information than with profit sharing mechanism. Moreover the dissertation analyses the construction of comprehensive price regulation model in electricity industry through the DEA model and benchmark competition.Entry regulation is another important research of natural monopoly regulation. The purpose of entry regulation is to maintain the stabilization of market and avoid'destructive competition' of natural monopoly industry through limiting new firms' investment behavior. Entry regulation of natural monopoly industry is necessary because the investment of natural monopoly industry has the property of high sunk-cost, which is not only the barrier to entry but also the basic reason of unsustainable competition. But rigid entry regulation is likely to lead low efficiency in natural monopoly industry, and so moderate competition under regulation is important. The dissertation proves that it is likely to fulfill moderate competition under entry regulation through admitting market infiltrative investment with improvement of technique and demand structure.