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Political Price Cycles in Regulated Industries: Theory and Evidence

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  • Moita, Rodrigo M.
  • Paiva, Claudio

Abstract

The early work of Stigler (1971) treats the regulatory process as the arbitration of conflicting economic and political interests rather than a pure welfare-maximizing effort. This paper builds on these ideas and models the regulatory process as a game where the industry-lobby, consumers-voters, and a regulator-politician interact to define the regulated price, in alternating electoral and non-electoral periods. The equilibrium that emerges consists of a fully rational political price cycle in a regulated industry. Using monthly data for regulated gasoline and electricity prices from Brazil, we find strong evidence pointing towards the existence of electoral price cycles in both markets. (JEL D72, L51, L71, L78, L94, L98, O14)

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Paper provided by Insper Working Paper, Insper Instituto de Ensino e Pesquisa in its series Insper Working Papers with number wpe_55.

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Date of creation: Oct 2006
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Handle: RePEc:ibm:ibmecp:wpe_55

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  19. Claudio Paiva & Rodrigo Moita, 2006. "Political Price Cycles in Regulated Industries," IMF Working Papers 06/260, International Monetary Fund.
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  21. Paiva, Claudio A. C., 1996. "Electoral price cycles in regulated industries," World Development, Elsevier, vol. 24(10), pages 1673-1680, October.
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