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How much discretion for risk regulators?

Author

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  • Yolande Hiriart
  • David Martimort

Abstract

We analyze the regulation of firms that undertake socially risky activities but can reduce the probability of an accident inflicted on third parties by carrying out non verifiable effort. Congress delegates regulation to an agency, although these two bodies may have different preferences toward the industry. The optimal level of discretion left to the agency results from the following trade-off: the agency can tailor discretionary policies to its expert knowledge about potential harm, but it implements policies that are too "pro-industry." The agency should be given full discretion when the firm is solvent; partial discretion is preferred otherwise. We then investigate how this trade-off changes as the political and economic landscapes are modified.
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Suggested Citation

  • Yolande Hiriart & David Martimort, 2012. "How much discretion for risk regulators?," RAND Journal of Economics, RAND Corporation, vol. 43(2), pages 283-314, June.
  • Handle: RePEc:bla:randje:v:43:y:2012:i:2:p:283-314
    DOI: j.1756-2171.2012.00166.x
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    File URL: http://hdl.handle.net/10.1111/j.1756-2171.2012.00166.x
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    Cited by:

    1. Fahad Khalil & Doyoung Kim & Jacques Lawarrée, 2013. "Contracts offered by bureaucrats," RAND Journal of Economics, RAND Corporation, vol. 44(4), pages 686-711, December.
    2. Julien Xavier Daubanes, 2017. "The Sustainable Management of a Productive Natural Capital," IFRO Working Paper 2017/08, University of Copenhagen, Department of Food and Resource Economics.
    3. Iossa, Elisabetta & Martimort, David, 2016. "Corruption in PPPs, incentives and contract incompleteness," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 85-100.
    4. Kim, Doyoung, 2013. "Delegation of information verification," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 488-500.
    5. François DESTANDAU & Anne ROZAN & Sandrine SPAETER, 2014. "Supra-Regional vs. Regional Regulators in the Water Pollution Mitigation: Optimal Exemption Policies," Working Papers of BETA 2014-09, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    6. Julien Daubanes & Jean-Charles Rochet, 2013. "Activists versus Captured Regulators," CESifo Working Paper Series 4444, CESifo Group Munich.
    7. Antonio Estache & Liam Wren-Lewis, 2010. "What Anti-Corruption Policy Can Learn from Theories of Sector Regulation," Working Papers ECARES ECARES 2010-033, ULB -- Universite Libre de Bruxelles.
    8. Tapas Kundu & Tore Nilssen, 2017. "Delegation of Regulation," CESifo Working Paper Series 6589, CESifo Group Munich.
    9. Antonio Estache & Liam Wren-Lewis, 2011. "Anti-Corruption Policy in Theories of Sector Regulation," Chapters,in: International Handbook on the Economics of Corruption, Volume Two, chapter 9 Edward Elgar Publishing.
    10. Julien Daubanes & Jean-Charles Rochet, 2016. "The Rise of NGO Activism," CESifo Working Paper Series 5891, CESifo Group Munich.
    11. repec:bla:scandj:v:119:y:2017:i:3:p:571-596 is not listed on IDEAS
    12. AGRELL, Per & GAUTIER, Axel, 2010. "A theory of soft capture," CORE Discussion Papers 2010084, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
      • Axel Gautier & Per J. Agrell, 2011. "A Theory of Soft Capture," CREPP Working Papers 1107, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.

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