This research project makes important methodological and substantive contributions to our understanding of business regulation. Methodologically, most of the sizable literature on regulatory behavior assumes that the regulator is a "first-mover" in the regulatory setting and is able to commit to incentive mechanisms which induce the regulated firm to truthfully reveal its private information or undertake costly hidden actions. This project examines regulatory price and standard setting where regulators are often unwilling or unable to make credible commitments to specific regulatory actions or policies. Substantively, the research provides new insights into technology-forcing standards. Technology-forcing regulations are those in which the agency writes a standard that is costly, or even impossible to meet using current technology. This is an important and interesting class of problems because technology- forcing standard setting is used in environmental regulation, regulation of product and occupational safety, and regulation of product efficacy and durability. The project focuses on the effects of limited regulatory commitment on sequential equilibrium pricing and investment strategies by regulated firms. First technology-forcing regulation is studied in a standard setting context. The incentives for the firm to invest in new compliance technologies and the intertemporal evolution of standards are emphasized. Second, the project considers a model of price regulation in which the regulator determines the firm's rate structure after it has made its investment in capital. Third, the effects of regulatory commitment on the quality of service are studied.
