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Credibility and the design of regulatory agencies in Brazil

Author

Listed:
  • Bernardo Mueller

    (Assistant Professor, Department of Economics, Universidade de Brasilia – UNB, Brasília/DF, Brasil.)

  • Carlos Pereira

    (Research Fellow in Politics, Centre for Brazilian Studies - University of Oxford, United Kingdom)

Abstract

In this paper we model the process of regulatory agency design, focusing on the role of credibility. The government is constrained in the sense that it must create regulatory institutions that allow it to commit to not administratively expropriate investors. The model explains both the preference of the agency head chosen by the government as well as the optimal level of statutory control. We argue that in Brazil this trade-off between credibility and control of the agencies is key to understanding the specific regulatory institutions that have been chosen. Comparative static results are derived to examine how changes in some key variables affect the design of the agencies, providing us with a set of hypotheses for comparing the design of five different agencies created to regulate industries with very different characteristics. Although these agencies were initially created under very similar designs, they are expected to evolve in ways that accord with our theory. JEL Classification: L5; K2; D82.

Suggested Citation

  • Bernardo Mueller & Carlos Pereira, 2002. "Credibility and the design of regulatory agencies in Brazil," Brazilian Journal of Political Economy, Center of Political Economy, vol. 22(3), pages 449-472, July.
    • Handle: RePEc:ekm:repojs:v:22:y:2002:i:3:id:95826
    DOI: 10.1590/0101-31572002-1261
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    Keywords

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    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • K2 - Law and Economics - - Regulation and Business Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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