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The politics of requesting: Strategic behavior and public utility regulation

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  • Heather E. Campbell

    (Graduate School of Public Affairs, Arizona State University, Tempe, Arizona)

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    Abstract

    Extant models of public utility regulation assume that regulated firms make the same rate adjustment requests regardless of the political environment they will face during the rate case. Focusing on information asymmetries, the repeated interaction between the firm and the regulatory commission, and behavioral assumptions about the goals of regulators, a new model is proposed that assumes firms strategically and rationally plan their requests to respond to political and agency, as well as standard economic factors. An implication of the new model is that the effect of political factors, such as grassroots advocacy and regulator election, should be observed in request equations rather than in award equations where they are traditionally sought. This new model is tested using data from 54 telephone rate cases. The results indicate that firms do respond strategically to political factors (especially to regulator elections), and also to agency factors (such as workload), by increasing their requests. This partially explains a puzzling result in the literature and has implications for regulatory policy, interest group behavior, democratic institutions, and public management.

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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Journal of Policy Analysis and Management.

    Volume (Year): 15 (1996)
    Issue (Month): 3 ()
    Pages: 395-423

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    Handle: RePEc:wly:jpamgt:v:15:y:1996:i:3:p:395-423

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    Web page: http://www3.interscience.wiley.com/journal/34787/home

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    1. Steven Kelman, 1992. "Adversary and cooperationist institutions for conflict resolution in public policymaking," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 11(2), pages 178-206.
    2. Walter Primeaux & Patrick Mann, 1985. "Voter power and electricity prices," Public Choice, Springer, Springer, vol. 47(3), pages 519-525, January.
    3. Robert S. Chirinko & Edward P. Harper, Jr., 1992. "Buckle-Up or Slow-Down? New Estimates of Offsetting Behavior and Their Implications for Automobile Safety Regulation," Working Papers, Harris School of Public Policy Studies, University of Chicago 9207, Harris School of Public Policy Studies, University of Chicago.
    4. Paul L. Joskow, 1973. "Pricing Decisions of Regulated Firms: A Behavioral Approach," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 4(1), pages 118-140, Spring.
    5. William T. Gormley, 1987. "Institutional policy analysis: A critical review," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 6(2), pages 153-169.
    6. Robert L. Hagerman & Brian T. Ratchford, 1978. "Some Determinants of Allowed Rates of Return on Equity to Electric Utilities," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 9(1), pages 46-55, Spring.
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