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The Political Economy of Incentive Regulation: Theory and Evidence from US States

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  • Carmine Guerriero

    (University of Cambridge)

Abstract

The determinants of incentive regulation are a key issue in industrial policy. I study an asymmetric information model of incentive rules selection by a political principal endowed with an information-gathering technology whose efficiency increases with the effort exerted by two accountable supervisors (a regulator and a judge). This set up captures the institutions of several international markets. The model predicts that reforms toward higher powered rules are more likely the more inefficient (efficient) is the production (information-gathering) technology, the less tight is political competition and the greater are pro-consumer supervisors’ incentives. This prediction is consistent with evidence based on US electric power market data.

Suggested Citation

  • Carmine Guerriero, 2008. "The Political Economy of Incentive Regulation: Theory and Evidence from US States," Working Papers 2008.34, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2008.34
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    Cited by:

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    2. Bastianin, Andrea & Castelnovo, Paolo & Florio, Massimo, 2018. "Evaluating regulatory reform of network industries: a survey of empirical models based on categorical proxies," Utilities Policy, Elsevier, vol. 55(C), pages 115-128.
    3. Yuri A. Kolesnikov & Tatiana V. Epifanova & Anastasia M. Usenko & Ekaterina Parshina & Victoria N. Ostrovskaya, 2016. "The Peculiarities of State Regulation of Innovation Activities of Enterprises in the Global Economy," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 10(4), December.
    4. Boggio, Margherita, 2011. "Municipal capitalism, regulatory federalism and politics," MPRA Paper 46244, University Library of Munich, Germany.
    5. Steve Cicala, 2015. "When Does Regulation Distort Costs? Lessons from Fuel Procurement in US Electricity Generation," American Economic Review, American Economic Association, vol. 105(1), pages 411-444, January.
    6. Di Foggia, Giacomo & Beccarello, Massimo, 2023. "Designing circular economy-compliant municipal solid waste management charging schemes," Utilities Policy, Elsevier, vol. 81(C).
    7. Guerriero, Carmine, 2011. "Accountability in government and regulatory policies: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 453-469.
    8. Di Foggia, Giacomo & Beccarello, Massimo, 2020. "The impact of a gain-sharing cost-reflective tariff on waste management cost under incentive regulation: The Italian case," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 265.
    9. Carmine Guerriero, 2023. "Property rights, transaction costs, and the limits of the market," Economics of Governance, Springer, vol. 24(2), pages 143-176, June.

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    More about this item

    Keywords

    Incentive Schemes; Accountability Rules; Regulatory Capture;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • K2 - Law and Economics - - Regulation and Business Law

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