A theory of soft capture
AbstractIn this paper, wee propose a model for regulatory capture that is based on information transmission and asymmetric information. In a three- tier model, a regulator is charged by a political principal to provide a signal for the type of a regulated firm. Only the firm can observe his type and the production of a correlated signal with a given accuracy is costly for the regulator. The firm can costlessly provide an alternative signal of lower accuracy that is presented to the regulator. In a self-enforcing equilibrium, the regulator transmits the firm-produced signal, internalizes its own savings in information cost and the firm enjoys higher information rents. The main feature of soft capture is that it is not based on a reciprocity of favors but on a congruence of interests between the firm and the regulator.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010084.
Date of creation: 01 Dec 2010
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regulation; capture; information;
Other versions of this item:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-12 (All new papers)
- NEP-CTA-2011-02-12 (Contract Theory & Applications)
- NEP-REG-2011-02-12 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Martimort, David, 1999. "The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs," Review of Economic Studies, Wiley Blackwell, vol. 66(4), pages 929-47, October.
- Winfried Pohlmeier & Luc Bauwens & David Veredas, 2007. "High frequency financial econometrics. Recent developments," ULB Institutional Repository 2013/136223, ULB -- Universite Libre de Bruxelles.
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