Jean-Jacques Laffont (IDEI and GREMAQ (UMR 5603 CNRS), Universite des Sciences Sociales, Place Anatole-France,) Jerome Pouyet () (CERAS-ENPC (URA 2036 CNRS), 28 rue des Saint Peres, 75007 Paris, France.)
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We study the choice of the regulatory structure when a regulated firm engages in different activities for different countries. Under decentralization each activity is regulated independently and the contracts offered to the firm suffer from two oppos- ite distortions with respect to centralization: the competition between regulatory authorities forces them to offer too high-powered incentive contracts; however, be- cause the ownership structure of the firm is dispersed across the countries, each regulator does not fully internalize the effect of his regulation on the firm's rent and contracts tend to be too low-powered. When the activities of the firm are suf- ficiently substitutable we show that decentralization always leads to an inefficient drift of the regulatory contracts towards fixed-price contracts. Nonetheless, when regulators have private agendas and possess the discretion to distort their policy to gain the support of some interest groups, then decentralization of the regulat- ory powers may be preferred to centralization as competition between regulatory authorities eradicates their discretionary power.
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Paper provided by Dipartimento di Scienze Economiche - Università di Bari in its series series with number
0001.
Find related papers by JEL classification: D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior H41 - Public Economics - - Publicly Provided Goods - - - Public Goods H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
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Jean-Jacques Laffont & David Martimort, 1998.
"Collusion and Delegation,"
RAND Journal of Economics,
The RAND Corporation, vol. 29(2), pages 280-305, Summer.
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