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The political economy of incentive regulation: Theory and evidence from US states

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  • Guerriero, Carmine

Abstract

The determinants of incentive regulation are an important issue in economics. More powerful rules relax allocative distortions at the cost of lower rent extraction. Hence, they should be found where the reformer is more concerned with stimulating investments by granting higher expected profits, and where rent extraction is less necessary since the extent of information asymmetries is more limited. This prediction is consistent with US power market data. During the 1990s, performance based contracts were signed by firms operating in states where generation costs were historically higher than those characterizing neighboring markets and the regulator had stronger incentives to exert information-gathering effort because elected instead of being appointed.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 41 (2013)
Issue (Month): 1 ()
Pages: 91-107

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Handle: RePEc:eee:jcecon:v:41:y:2013:i:1:p:91-107

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Web page: http://www.elsevier.com/locate/inca/622864

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Keywords: Incentive regulation; Regulatory capture; Electricity; Accountability;

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Cited by:
  1. Niklas Potrafke, 2010. "Does government ideology influence deregulation of product markets? Empirical evidence from OECD countries," Public Choice, Springer, vol. 143(1), pages 135-155, April.
  2. Guerriero, Carmine, 2011. "Accountability in government and regulatory policies: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 453-469.
  3. Boggio, Margherita, 2011. "Municipal capitalism, regulatory federalism and politics," MPRA Paper 46244, University Library of Munich, Germany.
  4. Boggio, Margherita, 2011. "From Reluctant Privatization to Municipal Capitalism: an Overview on Ownership, Political Connections and Decentralization," MPRA Paper 46232, University Library of Munich, Germany.

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