Regulatory Risk: Objections to the Theory
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Chapter 2 explored the broad consequences of regulatory policies that impose the risk of a substantial loss without an offsetting opportunity for a substantial gain (“asymmetric regulatory risk”). The logic of that chapter contended that the rate of return allowed by regulators must be in excess of the cost of capital in the presence of asymmetric regulatory risk, such as the prospect of large cost disallowances.
KeywordsCash Flow Stock Price Economic Principle Capital Asset Price Model Regulatory Risk
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