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Endogenous Price Mechanisms, Capture and Accountability Rules: Theory and Evidence

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  • Guerriero, Carmine

Abstract

This paper analyzes the constitutional determinants of cost reimbursement rules. In order to design the optimal incentive schemes, a possibly partisan planner will take into account the market cost structure, the institutional design of the supervision hierarchical structure and its technology. I employ electricity data from the U.S. electric power market to test the model's predictions. The evidence shows that reforms from low powered incentive scheme (COS) to high powered one (PBR) are linked to high cost industries, the presence of elected supervisors, high inter-party platform distance and large (slim) majority when the reformer is Republican (Democratic). Moreover, there is some evidence in the data that performance-based regulation lowers regulated prices.

Suggested Citation

  • Guerriero, Carmine, 2006. "Endogenous Price Mechanisms, Capture and Accountability Rules: Theory and Evidence," Privatisation Regulation Corporate Governance Working Papers 12197, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feempr:12197
    DOI: 10.22004/ag.econ.12197
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    References listed on IDEAS

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    1. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
    2. Torsten Persson & Lars E. O. Svensson, 1989. "Why a Stubborn Conservative would Run a Deficit: Policy with Time-Inconsistent Preferences," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 325-345.
    3. F. Andrew Hanssen, 2004. "Learning about Judicial Independence: Institutional Change in the State Courts," The Journal of Legal Studies, University of Chicago Press, vol. 33(2), pages 431-473, June.
    4. Timothy Besley & Anne Case, 2003. "Political Institutions and Policy Choices: Evidence from the United States," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 7-73, March.
    5. Paul L. Joskow, 2014. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344, National Bureau of Economic Research, Inc.
    6. Alberto Alesina & Guido Tabellini, 2003. "Bureaucrats or Politicians?," Working Papers 238, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Carmine Guerriero, 2006. "Dependent Controllers and Regulation Policies: Theory and Evidence," Working Papers 2006.109, Fondazione Eni Enrico Mattei.
    8. Jamasb, T. & Pollitt, M., 2001. "Benchmarking and Regulation of Electricity Transmission and Distribution Utilities: Lessons from International Experience," Cambridge Working Papers in Economics 0101, Faculty of Economics, University of Cambridge.
    9. F. Andrew Hanssen, 2004. "Is There a Politically Optimal Level of Judicial Independence?," American Economic Review, American Economic Association, vol. 94(3), pages 712-729, June.
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    Cited by:

    1. Flavio Menezes & Magnus Söderberg & Miguel Santolino, 2012. "Regulatory behaviour under threat of court reversal," Discussion Papers Series 472, School of Economics, University of Queensland, Australia.
    2. Carmine Guerriero, 2006. "Dependent Controllers and Regulation Policies: Theory and Evidence," Working Papers 2006.109, Fondazione Eni Enrico Mattei.

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    Keywords

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    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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