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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.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2008.34.

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Date of creation: Apr 2008
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Handle: RePEc:fem:femwpa:2008.34

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Keywords: Incentive Schemes; Accountability Rules; Regulatory Capture;

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Cited by:
  1. Boggio, Margherita, 2011. "From Reluctant Privatization to Municipal Capitalism: an Overview on Ownership, Political Connections and Decentralization," MPRA Paper 46232, University Library of Munich, Germany.
  2. Boggio, Margherita, 2011. "Municipal capitalism, regulatory federalism and politics," MPRA Paper 46244, University Library of Munich, Germany.
  3. Guerriero, Carmine, 2011. "Accountability in government and regulatory policies: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 453-469.

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