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