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Politically Induced Regulatory Risk and Independent Regulatory Agencies

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  • Strausz, Roland

    (Humboldt Universität Berlin)

Abstract

Uncertainty in election outcomes generates politically induced regulatory risk. For monopoly regulation, political parties\' risk attitudes towards such risk depend on a fluctuation effect that hurts both parties and an output--expansion effect that benefits at least one party. Irrespective of the parties\' risk attitudes, political parties have incentives to negotiate away regulatory risk by pre-electoral bargaining. Pareto-efficient bargaining outcomes fully eliminate regulatory risk and are attainable through institutionalizing independent regulatory agencies with a specific objective. Key aspects of the regulatory overhaul of the US Postal system in 1970 are argued to be consistent with these results.

Suggested Citation

  • Strausz, Roland, 2017. "Politically Induced Regulatory Risk and Independent Regulatory Agencies," Rationality and Competition Discussion Paper Series 44, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:44
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    References listed on IDEAS

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    Cited by:

    1. Tapas Kundu & Tore Nilssen, 2020. "Delegation of Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 68(3), pages 445-482, September.
    2. Fiocco, Raffaele & Guo, Dongyu, 2020. "Regulatory risk, vertical integration, and upstream investment," European Economic Review, Elsevier, vol. 128(C).

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    More about this item

    Keywords

    regulation; independent regulatory agency; regulatory risk; electoral uncertainty;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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