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Regulatory behaviour under threat of court reversal

Author

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  • Magnus Söderberg

    (CERNA i3 - Centre d'économie industrielle i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris sciences et lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique)

  • Flavio Menezes

    (School of Economics - UQ [All campuses : Brisbane, Dutton Park Gatton, Herston, St Lucia and other locations] - The University of Queensland)

  • Miguel Santolino

    (Department of Econometrics - University of Barcelona)

Abstract

We investigate how public bureaucrats influence outcomes in regulated markets when they resolve price disputes. It has previously been demonstrated that regulators cause biased outcomes when they have short office terms, i.e. when they have relatively strong career concerns (Leaver, 2009). This paper extends previous studies to the situation when bureaucrats have life tenure and therefore have relatively weaker career concerns. We posit that potential career concerns are negatively related to experience in that experienced regulators develop stronger concerns for consumers. This suggests that the regulator's motivation matter for regulatory decisions but that motivation might change as regulators become more experienced. We also posit that regulators' behaviour is influenced by case complexity, which affects how much effort that have to put in towards a regulatory decision. Our theoretical model predicts that regulators set lower prices when cases are less complex and that those prices are confirmed when appealed to the court. For more complex cases, the court reduces the regulator's price when she is only concerned about her career and the court increases the regulator's price when she cares about both her career and consumer surplus. All these predictions are confirmed empirically when using data on 489 disputes from the Swedish electricity market.

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  • Magnus Söderberg & Flavio Menezes & Miguel Santolino, 2013. "Regulatory behaviour under threat of court reversal," Working Papers hal-00874878, HAL.
  • Handle: RePEc:hal:wpaper:hal-00874878
    Note: View the original document on HAL open archive server: https://hal.science/hal-00874878
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    References listed on IDEAS

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