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Modeling Regulatory Behavior: The Economic Theory of Regulation versus Alternative Theories and Simple Rules of Thumb

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  • Caudill, Steven B
  • Im, Bae-Geun
  • Kaserman, David L

Abstract

Empirical tests of the economic theory of regulation have typically consisted of estimation of a model of some observed regulatory decision, with various interest group variables incorporated as exogenous determinants of that decision. Statistical significance of the coefficients of these interest group variables is then taken as empirical support for this theory. Here, a different approach is adopted. We specify seven alternative models based upon: (1) the economic theory of regulation, (2) alternative theories of regulatory behavior, and (3) simple rules of thumb. Model selection tests are then performed. Our findings reveal that the economic theory of regulation consistently outperforms the alternative method. Copyright 1993 by Kluwer Academic Publishers

Suggested Citation

  • Caudill, Steven B & Im, Bae-Geun & Kaserman, David L, 1993. "Modeling Regulatory Behavior: The Economic Theory of Regulation versus Alternative Theories and Simple Rules of Thumb," Journal of Regulatory Economics, Springer, vol. 5(3), pages 251-262, September.
    • Handle: RePEc:kap:regeco:v:5:y:1993:i:3:p:251-62
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    Cited by:

    1. Larry Blank & John Mayo, 2009. "Endogenous Regulatory Constraints and the Emergence of Hybrid Regulation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(3), pages 233-255, November.
    2. Newbery, David M., 1997. "Privatisation and liberalisation of network utilities," European Economic Review, Elsevier, vol. 41(3-5), pages 357-383, April.
    3. Richard J. Cebula & Franklin G. Mixon Jr. & Kamal P. Upadhyaya, 2014. "Public Choice and the EPA, 20 Years Later: An Exploratory Study," American Journal of Economics and Sociology, Wiley Blackwell, vol. 73(2), pages 341-352, April.
    4. Mixon Jr., Franklin G. & Upadhyaya, Kamal P., 1999. "The impact of economic regulation on attempts to curb expense preference behavior: a micro-data analysis of CEO compensation schemes for electric utilities," Energy Economics, Elsevier, vol. 21(2), pages 185-194, April.
    5. Franklin G. Mixon, 1994. "What Can Regulators Regulate," American Journal of Economics and Sociology, Wiley Blackwell, vol. 53(4), pages 403-414, October.
    6. Upadhyaya, Kamal P. & Raymond, Jeannie E. & Mixon, Franklin Jr., 1997. "The economic theory of regulation versus alternative theories for the electric utilities industry: A simultaneous probit model," Resource and Energy Economics, Elsevier, vol. 19(3), pages 191-202, August.

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