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This paper will study the A-J Effect and the strategy of the Power Company under dynamic game of incomplete information. We will research the dynamic game of information between the regulatory agencies and power companies, and then we conclude that the optimal strategy of Power Company is not to make excessive capital investment. The regulated assets, debt ratio and the extra cost will limit the Power Company's investment. At the same time, Power Company will consider three factors: the regulated assets, the loan interest rate and the rate of return to adjust its investment strategy. In each kind of optimal strategy, there will exists the optimal debt ratio for the Power Company.
Date of Conference: 16-18 Sept. 2011