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Measuring the Power of Regulatory Regimes

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  • Dennis L. Weisman

    (Kansas State University)

Abstract

The power of a regulatory regime (PRR) measures the strength of the incentives for cost-reducing innovation. A static PRR metric is derived that is a function of: the regulated firm’s share of profits; the ratchet effect; and the Arrow effect. The analysis reveals that the dynamic PRR is significantly lower than the static PRR even for long-lived regulatory regimes. A key finding is that the literature may significantly overstate the PRR. This may help explain why the empirical findings with regard to the efficiency gains from price cap regulation do not offer unequivocal validation of the prevailing theory.

Suggested Citation

  • Dennis L. Weisman, 2023. "Measuring the Power of Regulatory Regimes," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(1), pages 19-32, February.
    • Handle: RePEc:kap:revind:v:62:y:2023:i:1:d:10.1007_s11151-022-09879-6
    DOI: 10.1007/s11151-022-09879-6
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    References listed on IDEAS

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