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Delegation and the Ratchet Effect: Should Regulators Be Pro-Industry?

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Author Info
Currie, David
Levine, Paul L
Rickman, Neil

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Abstract

Delegation to independent bodies whose preference can be different from those of the government has been shown to have beneficial commitment benefits in areas as widely diverse as monetary policy and trade. This paper addresses the case for delegation in the context of a cost-reimbursement procurement problem. Our solution combines several features of the modern regulatory environment: government commitment to a particular regulator, the provision of independence to that regulator, and heterogeneity across regulators available. We find that delegation to an independent industry regulator, whose preferences are more pro-rent than those of the government, can raise welfare by mitigating the ratchet effect.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2274.

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Date of creation: Oct 1999
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Handle: RePEc:cpr:ceprdp:2274

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Related research
Keywords: Delegation; Procurement; Ratchet Effect;

Find related papers by JEL classification:
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

References listed on IDEAS
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.:

  1. Konrad, Kai A. & Torsvik, Gaute, 1997. "Dynamic incentives and term limits in bureaucracy regulation," European Journal of Political Economy, Elsevier, vol. 13(2), pages 261-279, May. [Downloadable!] (restricted)
  2. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
  3. Barry W. Ickes & Larry Samuelson, 1987. "Job Transfers and Incentives in Complex Organizations: Thwarting the Ratchet Effect," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 275-286, Summer. [Downloadable!] (restricted)
  4. Currie, David & Levine, Paul & Pearlman, Joseph, 1996. "The Choice of 'Conservative' Bankers in Open Economies: Monetary Regime Options for Europe," Economic Journal, Royal Economic Society, vol. 106(435), pages 345-58, March. [Downloadable!] (restricted)
  5. John M. Litwack, 1993. "Coordination, Incentives, and the Ratchet Effect," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 271-285, Summer. [Downloadable!] (restricted)
  6. Dalen, Dag Morten, 1995. "Efficiency-improving investment and the ratchet effect," European Economic Review, Elsevier, vol. 39(8), pages 1511-1522, October. [Downloadable!] (restricted)
  7. Nahum Melamad & Dilip Mookherjee & Stefan Reichelstein, 1996. "Contract Complexity, Incentives and the Value of Delegation," Papers 0070, Boston University - Industry Studies Programme.
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  8. Robert J. Barro & David B. Gordon, 1984. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Armstrong, M., 1994. "Delegation and Discretion," Discussion Paper Series In Economics And Econometrics 9421, Economics Division, School of Social Sciences, University of Southampton.
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  10. Dillen, Mats & Lundholm, Michael, 1996. "Dynamic income taxation, redistribution, and the ratchet effect," Journal of Public Economics, Elsevier, vol. 59(1), pages 69-93, January. [Downloadable!] (restricted)
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  11. Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers 37, Institut d'Économie Industrielle (IDEI), Toulouse.
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  12. David R. Collie, 1997. "Delegation And Strategic Trade Policy," International Economic Journal, Korean International Economic Association, vol. 11(3), pages 35-46, October. [Downloadable!] (restricted)
  13. Dalen, Dag Morten, 1997. "Regulation of Quality and the Ratchet Effect: Does Unverifiability Hurt the Regulator?," Journal of Regulatory Economics, Springer, vol. 11(2), pages 139-55, March. [Downloadable!] (restricted)
  14. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June. [Downloadable!] (restricted)
  15. Brown, Pamela Clark & Miller, Jeffrey B & Thornton, James R, 1994. "The Ratchet Effect and the Coordination of Production in the Absence of Rent Extraction," Economica, London School of Economics and Political Science, vol. 61(241), pages 93-114, February. [Downloadable!] (restricted)
  16. Mark Armstrong & Simon Cowan & John Vickers, 1994. "Regulatory Reform: Economic Analysis and British Experience," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262510790.
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Cited by:
(explanations, 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.)

  1. Paul Levine & Paul Levine & Jon Stern & Francesc Trillas, 2003. "Independent Utility Regulators: Lessons from Monetary Policy," Department of Economics Discussion Papers 0403, Department of Economics, University of Surrey. [Downloadable!]
  2. Paul Levine & Neil Rickman, 2003. "Price Regulation, Investment and the Commitment Problem," Department of Economics Discussion Papers 0603, Department of Economics, University of Surrey. [Downloadable!]
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