Overall Methodological Assumptions Of The Budget Constraint And The Nature Of Financial Markets

2018 WordsDec 13, 20159 Pages
Overall methodological assumptions 1. On the choice of the budget-constraint and the nature of financial markets We will notice that in an intertemporal scenario there are two possibilities of formulating a break-even constraint for the natural monopolist but that one of them is more useful for our purposes. The first possibility would consist of imposing repeatedly – i.e. period-by-period – a zero-profit condition: this former case however, even if more correct in a real perspective of changing interest rates and of non-flat yield curves, remains just theoretical because of its not slightly difficult enforceability. The second possibility is instead to require the present value of net future cash flows to achieve a target level that can be fixed following the optimal forecast built up on the full-information rational expectation of today: to follow this way it will be necessary to assume perfect financial markets, that is what we will do . Therefore, for the sake of our inquiry and given that we will work with discounted values of profits and benefits, it will be necessary to introduce a depreciation and a discount rate, thing that we will do pro tempore but according on the hypothesis of perfection of financial markets. 2. On the evolution from the one-product to the multiproduct case It is now necessary to point out the symmetry that makes it possible to move from the time-sensitive examination of the single-product Natural Monopoly, regulated with AC pricing

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