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Politically induced regulatory risk and independent regulatory agencies

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  • Strausz, Roland

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," International Journal of Industrial Organization, Elsevier, vol. 54(C), pages 215-238.
  • Handle: RePEc:eee:indorg:v:54:y:2017:i:c:p:215-238
    DOI: 10.1016/j.ijindorg.2017.07.003
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    Cited by:

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

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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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