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Good and Bad Consistency in Regulatory Decisions

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  • FLAVIO M. MENEZES
  • CHRISTIAN ROESSLER

Abstract

We examine sources of consistent regulatory decisions in a model where regulators respond to mixed incentives, including career concerns. In the reference case, regulators act as ‘public servants’ who strive to make the socially optimal decision, given limited information and the opportunity to observe the prior decision of another regulator. The addition of career concerns, such as a desire to avoid controversy or to implement a future employer's preferred policy, tends to reduce the degree of differentiation in sequentially taken decisions, hence increasing consistency. Therefore, it is possible to observe that the self-interested career concerns of regulators give rise to consistency in regulatory decision making. This type of consistency might lead to substantial deviations from optimal regulatory policies.

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File URL: http://hdl.handle.net/10.1111/j.1475-4932.2010.00631.x
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Bibliographic Info

Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 86 (2010)
Issue (Month): 275 (December)
Pages: 504-516

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Handle: RePEc:bla:ecorec:v:86:y:2010:i:275:p:504-516

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  1. Semih Koray & Ismail Saglam, 2005. "The Need for Regulating a Bayesian Regulator," Journal of Regulatory Economics, Springer, vol. 28(1), pages 5-21, 07.
  2. Walter J. Primeaux, Jr. & Patrick C. Mann, 1986. "Regulator Selection Methods and Electricity Prices," Land Economics, University of Wisconsin Press, vol. 62(1), pages 1-13.
  3. Clare Leaver, 2007. "Bureaucratic Minimal Squawk Behavior: Theory and Evidence from Regulatory Agencies," Economics Series Working Papers 344, University of Oxford, Department of Economics.
  4. Troy Quast, 2008. "Do elected public utility commissioners behave more politically than appointed ones?," Journal of Regulatory Economics, Springer, vol. 33(3), pages 318-337, June.
  5. Stephen Coate & Timothy Besley, 2000. "Elected versus Appointed Regulators: Theory and Evidence," NBER Working Papers 7579, National Bureau of Economic Research, Inc.
  6. Dale Lehman & Dennis Weisman, 2000. "The Political Economy of Price Cap Regulation," Review of Industrial Organization, Springer, vol. 16(4), pages 343-356, June.
  7. Paul Levine & John Stern & Francesc Trillas, 2005. "Utility price regulation and time inconsistency: comparisons with monetary policy," Oxford Economic Papers, Oxford University Press, vol. 57(3), pages 447-478, July.
  8. Christopher R. Knittel, 2003. "Market Structure and the Pricing of Electricity and Natural Gas," Journal of Industrial Economics, Wiley Blackwell, vol. 51(2), pages 167-191, 06.
  9. Robert Breunig & Jeremy Hornby & Scott Stacey & Flavio Menezes, 2006. "Price Regulation in Australia: How Consistent Has It Been?," The Economic Record, The Economic Society of Australia, vol. 82(256), pages 67-76, 03.
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Cited by:
  1. Flavio Menezes & Magnus Söderberg & Miguel Santolino, 2012. "Regulatory behaviour under threat of court reversal," Discussion Papers Series 472, School of Economics, University of Queensland, Australia.
  2. Flavio M. Menezes, 2009. "Consistent Regulation of Infrastructure Businesses: Some Economic Issues," Economic Papers, The Economic Society of Australia, vol. 28(1), pages 2-10, 03.

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