Information Asymmetries and Regulatory Decision Costs: An Analysis of U.S. Electric Utility Rate Changes 1980–2000
AbstractWe argue that information asymmetries between regulators and firms increase the administrative decision costs of initiating new policies due to the costs of satisfying evidentiary or ‘‘burden of proof’’ requirements. We further contend that regulators with better information about regulated firms—that is, with lower information asymmetries—have lower decision costs, thereby facilitating regulator policy making. To empirically test our predictions, we examine the relationship between regulatory informational environments and changes to regulated rates for all investor-owned electric utilities from 1980 to 2000. We exploit several natural sources of variation in the informational environments of US state utility regulators. These stem from the prior experiences and administrative resources of regulators, observable policy decisions of other regulatory agencies for a given utility, and differences in procedural regulations pertaining to rate increases and decreases. Our results suggest that as regulators acquire more information about utility operations, including from experience in office, they are more likely to enact rate decreases and less likely to implement rate increases.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Regulation2point0 in its series Working paper with number 595.
Date of creation: Feb 2010
Date of revision:
Contact details of provider:
Web page: http://regulation2point0.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-13 (All new papers)
- NEP-CTA-2010-11-13 (Contract Theory & Applications)
- NEP-REG-2010-11-13 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Richard A. Posner, 1974.
"Theories of Economic Regulation,"
NBER Working Papers
0041, National Bureau of Economic Research, Inc.
- Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
- Jeffrey T. Macher & John W. Mayo & Jack A. Nickerson, 2011. "Regulator Heterogeneity and Endogenous Efforts to Close the Information Asymmetry Gap," Journal of Law and Economics, University of Chicago Press, vol. 54(1), pages 25 - 54.
- Sam Peltzman, 1976.
"Toward a More General Theory of Regulation,"
NBER Working Papers
0133, National Bureau of Economic Research, Inc.
- Ai, Chunrong & Sappington, David E M, 2002. "The Impact of State Incentive Regulation on the U.S. Telecommunications Industry," Journal of Regulatory Economics, Springer, vol. 22(2), pages 133-59, September.
- Martimort, David, 1999. "The Life Cycle of Regulatory Agencies: Dynamic Capture and Transaction Costs," Review of Economic Studies, Wiley Blackwell, vol. 66(4), pages 929-47, October.
- Spulber, Daniel F & Besanko, David, 1992. "Delegation, Commitment, and the Regulatory Mandate," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(1), pages 126-54, March.
- McCubbins, Mathew D & Noll, Roger G & Weingast, Barry R, 1987. "Administrative Procedures as Instruments of Political Control," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 243-77, Fall.
- Tiller, Emerson H & Spiller, Pablo T, 1999. "Strategic Instruments: Legal Structure and Political Games in Administrative Law," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(2), pages 349-77, July.
- Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
- Spiller, Pablo T, 1990. "Politicians, Interest Groups, and Regulators: A Multiple-Principals Agency Theory of Regulation, or "Let Them Be Bribed."," Journal of Law and Economics, University of Chicago Press, vol. 33(1), pages 65-101, April.
- Stephen Ansolabehere & John M. de Figueiredo & James M. Snyder Jr, 2003. "Why is There so Little Money in U.S. Politics?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 105-130, Winter.
- Ernesto Dal Bo�, 2006. "Regulatory Capture: A Review," Oxford Review of Economic Policy, Oxford University Press, vol. 22(2), pages 203-225, Summer.
- Feinstein, Jonathan S, 1989. "The Safety Regulation of U.S. Nuclear Power Plants: Violations, Inspections, and Abnormal Occurrences," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 115-54, February.
- de Figueiredo, Rui J P, Jr & Spiller, Pablo T & Urbiztondo, Santiago, 1999. "An Informational Perspective on Administrative Procedures," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 283-305, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Archive Maintainer).
If references are entirely missing, you can add them using this form.