IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

The subsidiarity bias in regulation

  • Laffont, Jean-Jacques
  • Pouyet, Jerome

We study the choice of the regulatory structure when a regulated firm engages in different activities for different countries. Under decentralization each activity is regulated independently and the contracts offered to the firm suffer from two oppos- ite distortions with respect to centralization: the competition between regulatory authorities forces them to offer too high-powered incentive contracts; however, be- cause the ownership structure of the firm is dispersed across the countries, each regulator does not fully internalize the effect of his regulation on the firm's rent and contracts tend to be too low-powered. When the activities of the firm are suf- ficiently substitutable we show that decentralization always leads to an inefficient drift of the regulatory contracts towards fixed-price contracts. Nonetheless, when regulators have private agendas and possess the discretion to distort their policy to gain the support of some interest groups, then decentralization of the regulat- ory powers may be preferred to centralization as competition between regulatory authorities eradicates their discretionary power.

(This abstract was borrowed from another version of this item.)

If 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.

File URL: http://www.sciencedirect.com/science/article/B6V76-48BC222-1/2/bab94959200a649e28f0f72f69e10524
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 88 (2004)
Issue (Month): 1-2 (January)
Pages: 255-283

as
in new window

Handle: RePEc:eee:pubeco:v:88:y:2004:i:1-2:p:255-283
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

References listed on IDEAS
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.:

as in new window
  1. Jean Tirole & Jean-Jaques Laffont, 1985. "Using Cost Observation to Regulate Firms," Working papers 368, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Huizinga, H.P. & Nielsen, S.B., 1996. "The Political Economy of Capital Income and Profit Taxation in a Small Open Economy," Discussion Paper 1996-106, Tilburg University, Center for Economic Research.
  3. Olsen, Trond E & Torsvik, Gaute, 1993. "The Ratchet Effect in Common Agency: Implications for Regulation and Privatization," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(1), pages 136-58, April.
  4. Seabright, Paul, 1996. "Accountability and decentralisation in government: An incomplete contracts model," European Economic Review, Elsevier, vol. 40(1), pages 61-89, January.
  5. Gene Grossman & Elhanan Helpman, 1994. "Electoral Competition and Special Interest Politics," NBER Working Papers 4877, National Bureau of Economic Research, Inc.
  6. Sah, Raaj Kumar & Stiglitz, Joseph E, 1986. "The Architecture of Economic Systems: Hierarchies and Polyarchies," American Economic Review, American Economic Association, vol. 76(4), pages 716-27, September.
  7. Huizinga, H.P. & Nielsen, S.B., 1996. "The Coordination of Capital Income and Profit Taxation with Cross-Ownership of Firms," Discussion Paper 1996-104, Tilburg University, Center for Economic Research.
  8. Dana, James Jr. & Spier, Kathryn E., 1994. "Designing a private industry : Government auctions with endogenous market structure," Journal of Public Economics, Elsevier, vol. 53(1), pages 127-147, January.
  9. repec:dgr:kubcen:1996106 is not listed on IDEAS
  10. Laffont, Jean-Jacques & Martimort, David, 1994. "Separation of Regulators against Collusive Behavior," IDEI Working Papers 44, Institut d'Économie Industrielle (IDEI), Toulouse.
  11. Green, Jerry & Laffont, Jean-Jacques, 1977. "Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods," Econometrica, Econometric Society, vol. 45(2), pages 427-38, March.
  12. Pranab Bardhan and and Dilip Mookherjee., 1999. "Relative Capture of Local and Central Governments: An Essay in the Political Economy of Decentralization," Center for International and Development Economics Research (CIDER) Working Papers C99-109, University of California at Berkeley.
  13. Jean-Jacques Laffont & David Martimort, 1998. "Collusion and Delegation," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 280-305, Summer.
  14. Marcel Boyer & Jean-Jacques Laffont, 1999. "Toward a Political Theory of the Emergence of Environmental Incentive Regulation," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 137-157, Spring.
  15. Jean-Jacques Laffont & Jérome Pouyet, 2000. "The Subsidiarity Bias in Regulation," series 0001, Dipartimento di Scienze Economiche e Metodi Matematici - Università di Bari, revised Jun 2000.
  16. Oliver Hart & John Moore, 2005. "On the Design of Hierarchies: Coordination versus Specialization," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 675-702, August.
  17. David Martimort & Lars Stole, 2001. "Contractual Externalities and Common Agency Equilibria," CESifo Working Paper Series 581, CESifo Group Munich.
  18. Claudio Mezzetti, 1997. "Common Agency with Horizontally Differentiated Principals," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 323-345, Summer.
  19. David MARTIMORT, 1992. "Multi-principaux avec anti-sélection," Annales d'Economie et de Statistique, ENSAE, issue 28, pages 1-37.
  20. Laffont, Jean-Jacques & Zantman, Wilfried, 2002. "Information acquisition, political game and the delegation of authority," European Journal of Political Economy, Elsevier, vol. 18(3), pages 407-428, September.
  21. Picard Pierre & Gilbert G, 1991. "Incentives and the optimal size of local territories," CEPREMAP Working Papers (Couverture Orange) 9124, CEPREMAP.
  22. Olsen, T.E. & Osmundsen, P., 1998. "Strategic Tax Competition; Implications of National Ownership," Papers 11/98, Norwegian School of Economics and Business Administration-.
  23. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  24. repec:dgr:kubcen:1996104 is not listed on IDEAS
  25. Auriol, Emmanuelle & Laffont, Jean-Jacques, 1992. "Regulation by Duopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 507-33, Fall.
  26. Myerson, Roger B, 1979. "Incentive Compatibility and the Bargaining Problem," Econometrica, Econometric Society, vol. 47(1), pages 61-73, January.
  27. Gilbert, Guy & Picard, Pierre, 1996. "Incentives and optimal size of local jurisdictions," European Economic Review, Elsevier, vol. 40(1), pages 19-41, January.
  28. Caillaud, B. & Jullien, B. & Picard, P., 1996. "National vs European incentive policies: Bargaining, information and coordination," European Economic Review, Elsevier, vol. 40(1), pages 91-111, January.
  29. Gibbard, Allan, 1973. "Manipulation of Voting Schemes: A General Result," Econometrica, Econometric Society, vol. 41(4), pages 587-601, July.
  30. Martimort, David, 1999. "Renegotiation Design with Multiple Regulators," Journal of Economic Theory, Elsevier, vol. 88(2), pages 261-293, October.
  31. Laffont, Jean-Jacques, 1996. "Industrial policy and politics," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 1-27.
  32. Olsen, T.E. & Osmundsen, P., 1999. "Common Agency with Outside Options; the Case of International Taxation of an MNE," Norway; Department of Economics, University of Bergen 1999, Department of Economics, University of Bergen.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:88:y:2004:i:1-2:p:255-283. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.