Markets and Regulatory Hold-Up Problems

xs one of ten regional umts mandated by Congress and ostabhshed in Fall 1988 to support research, educatSon, and training m surface transportation. The UC Center serves federal Regmn IX and is supported by matehmg grants from the U.S. r~epart-merit of Transportafit~;~, the Califomm Department of Transportatlon (Caltra~), and the Universlty. Based on the Berkeley Campus, UCTC draws upon exlstmg eapabd~ties and resources of the Institutes of Transportatmn Studies at Berkeley, Davis, [rvme, and Los Angeles; the Institute of Urban and Regionat Development at Berkeley, and several acadenuc departments at the Berkeley, Davis, Irvme, and Los ~kngeles campuses. Faculty and students on other Umverslty of Cahfornm campuses may partle:pate m Center activities Researchers at other universities within the regmn also have opportunmes to coilaborate with UC faculty on seiected studies. UCTC's educational research programs are focused on strategic planning for improving metropohtan ~e=esslbility, wlth emphas~s on the spedal co:-~,uo~s in Regmn IX. Pamcular attention ~s directed to strategies for using transportatmn as an mstrument of economic development, whale also ac-eommodatmg to the region's persistent expansion and wbale mainminmg and enhanc-mg the quality of llfe there. The C~ter &swibutes reports on ~ts research m workmg papers, monographs, and in repnnts of pubhshed ameles. It also pubhshes Access, a magamne presenting sum-manes of selected studies. For a hst of pubhcauons in print, write m the address below. PISCLAIME The contents of this report reflect the views of the authoR, who are responsible for the facts and the accuracy of the inform~on presented herein. This dncument is disseminated under the sponsorship of the The contents of ttas report reflect the views of the author who is respons~le for the facts and accuracy of the data presented herein. Tho contents do not nce~ssan]y reflect tl~ ot'~]dal vi=ws or poh~ues of the Slate of ~s~]lfan~a or the U.S. Depm'maent of TrmsporUtaoa. ~ r~ort does not eonstatatc a sumda~ spee'ificafion, or regulation, Many regulatory programs such as environmental regulation are effectwe only ff firms make trreverslble investments that reduce the cost of compliance A firm potentially subject to regulation may therefore behave strategically by not Investing, thereby forcing the regulator to void the proposed rega~lation. We show that such incentives, wtuch resemble a holdup problem, may not be overcome when government's only tool is the trnposltlOn of an ermssIons tax. The holdup problem can be overcome by the Issuance of tradeable permits. A time-consistent equilibrium exists …